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Reader in Economic 









First Published 1929 
Published in Pelican Books 1939 



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THIS book was written ten years ago as a thesis in what may 
be called liberal economics. From the standpoint of the general 
reader of to-day, the method of approach has certain inevi- 
table drawbacks, but one advantage. The first disadvantage is 
(as I pointed out in the original preface), that it involves 
laborious technicalities which only students of economics will 
take in their stride. The second is that we are to-day, more 
than ten years ago, inclined to doubt if it was ever wise to 
permit the elevation of " political economy " to the status of a 
self-governing dominion in the empire of what once used to 
be called " moral philosophy." 

The advantage is that, in the new age of uncharitable faiths, 
the liberal economic method remains dispassionate and ag- 
nostic agnostic in all but one respect. Those who employ 
that method need not affirm a wholesale belief in utilitarian 
philosophy; but they must not throw away the baby with the 
bath water. They must accept (in theory at least) the idea, 
inherent in all the great philosophies and not least in the ethics 
of Christianity, that the welfare of all human beings, irre- 
spective of race, class, creed, or colour, is of equal importance 
in the sight of God and should be in the minds of men. Ten 
years ago it was not absurd optimism to assume that that belief 
formed a common basis underlying free discussion of social 
problems. An age seems to have passed since then. But 
anyone who takes the trouble to do any research on social and 
economic questions must^ still try to believe with Plato and 
the Stoics that " no soul wilfully misses truth." 

This book is primarily a study from a technical economic 
angle of the influence of inheritance on the distribution of 
wealth, and of the modifications which different laws and 
systems of taxation can make. Conditions in other countries 
have been briefly compared in three chapters. But, in the 
main, the facts and arguments relate to Britain. 



Although the statistics of the distribution of property and 
income are at least thirteen years old, more recent calculations, 
where they are available, do not show markedly different 
results, at least as regards this country. Nor would one ex- 
pect them to; for, except under conditions amounting to rapid 
social revolution, the general picture of riches and poverty 
changes but slowly. For example, even after the upheaval of 
the last war, the degree of inequality in the distribution of 
property in England had not greatly altered in twelve years. 
(See Table IV in the Appendix to Chapter I.) Also, we know 
from experience in public health services and education that 
it takes a generation before the resolute use of democratic 
machinery can show a clearly marked change in the condition 
of the people. 

The sample investigation into the fortunes of parents and 
children (recorded in Chapter VI) would have been easier to 
make and more definite in its results had it been made in 1938 
rather than in 1926 for technical reasons connected with 
Somerset House records. If anyone endures the ordeal of 
making such an investigation up to date, I should expect to 
see the proportion of inherited wealth somewhat reduced, be- 
cause (as noted in Chapters IV and V) war, unsettled economic 
conditions, and especially inflation, combined with the rela-. 
tively high rates of Estate Duty during the past twenty years, 
must reduce the economic influence of inheritance. But I 
should not alter my. general conclusion that in the "pluto- 
democracies " (as also, I believe, in Signer Mussolini's Italy) 
"unequal inheritances remain a most important factor in 
shaping the distribution of wealth." 

There are, however, other conclusions to which, if I were 
writing to-day, I should naturally *give more emphasis than 
this book gives. For instance, it is clear to-day that over a 
large part of Europe the expropriation of minority races, 
classes, and heretics, has violently reduced the economic im- 
portance of inheritance, and that even in modern times force, 
fraud, and sycophancy can rival industry and thrift as factors 
in the acquisition of wealth. 



Again, the social aspects of inherited wealth appear to-day 
in a new light; and the divergent views of Plato and of Ber- 
trand Russell (quoted in Chapter VIII, 13) could with ad- 
vantage be debated at more length. In a world dominated by 
" self-made " dictators, we tend to look back with regret to 
government by a hereditary oligarchy; and we know now 
that we do not possess them the value of those statesmen, 
like Harcourt, Gladstone, and Campbell-Bannerman, who 
inherited, along with their material fortunes, traditions of 
beneficence and a scorn of tyranny. But, in the searching 
light of recent events, can we say that Russell was wrong 
when he ascribed to the existence of a leisured class of inactive 
inheritors a timidity of thought which infects the cultural life 
of the society that surrounds it? And is not this timidity of 
thought about social problems one of the chief weaknesses 
that betrays democracy to dictatorship? 

If this book were a tract for the times I should wish to add 
to my remarks (in Chapter VIII, 1), concerning the hereditary 
transmission of riches and poverty, the nineteen-centuries-old 
warning about the danger of putting new wine into old bottles. 
Political democracies that do not democratise their economic 
systems are inherently unstable. 

Last, but not least, I should not refrain from emphasising 
(more than I have done in Chapter I, 6 and 13) that strictly 
economic considerations and motives are much less important 
hi people's lives than the writings of many economists would 
lead one to suppose. We see now more clearly how danger- 
ous it is to neglect the fact that love of power is a more potent 
force both for good and evil than the desire for material 
possessions; and that, once the struggle for bare existence is 
over, a sense of personal* importance to the world, a sense 
of fellowship, and a sense of freedom provide in the factory 
and workshop, as well as in the office and library, the most 
powerful incentives to productive effort. 

But the book was not written as a tract for these times, and 
the reader must forgive these omissions. He or she must also 
pardon the references in the book to now almost forgotten 



writers, like the Italian liberal Rignano, or the German Jew, 
Walther Rathenau, whose services a saner Germany will one 
day remember and reward, not by honouring his assassin, but 
by bringing to pass some of the " Things to Come " which he 

If some of the book is inevitably " dated," and if much of it 
is inevitably technical and specialised, it may none the less 
continue to serve a useful purpose as a contribution to the 
dispassionate study of problems which democracies must still 
face up to, if and when they recover their courage and their 
confidence. A greater degree of economic equality will be 
found essential to the preservation of political liberty, and the 
former will also be found worthless without the latter. The 
plain lessons of this generation are that liberty, equality, and 
fraternity the trinity of the democratic faith must march in 
line together if human happiness is our goal and the demo- 
cratic approach to it is to survive. 
November, 1938. 



THIS book is the outcome of a two years' study, made under 
the wing of the London School of Economics in 1926-8. As 
the title implies, I have treated my subject almost exclusively 
from the angle of the economist, and have followed the aca- 
demic method of endeavouring to give solid support to my 
conclusions by examining the pertinent facts within my reach, 
and by reasoning from them and from generally accepted 
premises. The method must involve laborious technicalities 
that cannot be tempting to the general reader, but it has its 
merits, particularly in dealing with questions that cannot fail 
to arouse our prejudices, if not our passions. 

The rough plan of the book is as follows. The first intro- 
ductory chapter gives my reasons for thinking that, from the 
economic standpoint alone, a more equal distribution of 
wealth is at least as important an aim as an increase of pro- 
duction, and that the two objectives do not necessarily lie in 
opposite directions. Chapters II to IV deal with the ways in 
which the inheritance of property aggravates and perpetuates 
inequality both of " earned " and " unearned " incomes, and 
the modifying effect on its influence of different laws of in- 
heritance and of varying social and economic conditions. 

Chapters V to VII are mainly statistical and are concerned 
with a question of fact, namely, how far inequality of wealth, 
particularly in modern Britain, is due to unequal inheritances. 
In putting forward the opinion that the institution of Inherit- 
ance is a more important factor in unequal distribution than 
is often supposed, I think^I have been careful not to overstrain 
the available evidence, and to emphasise that the inheritance 
of property itself is only one of the economic causes of 
hereditary differences in wealth and economic status. 

The next main section of the book discusses the influence 
of our system of inheritance on the production of wealth, and 
supports the opinion that the power to bequeath and receive 



large inheritances does not constitute an essential stimulus to 
productive effort and to the increase of the world's material 
equipment, and that it works to a certain degree as a stimulus 
in the opposite direction. 

The last portion of the book is concerned with criticisms 
and suggestions relating to the British Death Duties, which 
are here viewed rather as a potential engine for eliminating 
the large inheritor than as a device for raising revenue. 

The author's acknowledgments are due particularly to the 
following: to Dr. Hugh Dalton, M.P., not only for his gener- 
ous and sympathetic guidance of my studies at the London 
School of Economics, but also because his book on the In- 
equality of Incomes inspired a good many of my thoughts 
and researches, and is the best book of reference and criticism 
I know on the economic literature of the Distribution ques- 
tion; to Section F of the British Association for a grant towards 
expenses of the research work of which the results are given 
in Chapter VI; to the Registrar-General and the staff of his 
department for facilitating those researches by supplying 
essential information gleaned from Birth and Death Certifi- 
cates; to Mr. A. Beck of the Statistical Department, Inland 
' Revenue, and Mr. H. C. Scott of the Estate Duty Office, for 
expert advice on the statistics and the administrative aspects 
of taxation; and to the London School of Economics and its 
Librarian for arranging the publication of this book. This 
by no means completes the tale of my indebtedness, for tfiere 
are a number of friends who have helped me in one way or 
another above all, my wife, who has made this research work 
possible, and who has acted from time to time as secretary 
and literary critic. My debt to Mr. R. H. Tawney I have 
endeavoured to acknowledge somewhat inadequately by dedi- 
cating this book to him. 
November. 1928. 





INTRODUCTORY. 1. Inequality of wealth is now recog- 
nised as an economic defect of the social system. 2. But the 
force of this recognition is largely offset by the theory, based on 
statistics of the National Income, that more equal distribution is 
comparatively unimportant as compared with an increase in pro- 
duction. 3. The statistical estimates employed in support of 
the theory are open to criticism, particularly the estimates of 
"Savings" necessary to provide an adequate supply of capital. 
4. The extent of inequality in the distribution of wealth must 
be gauged not merely by the figures of income distribution, but also 
by the distribution of capital; because " unearned " income is worth 
more than " earned " income of the same amount. Inequality of 
capital wealth is much greater than inequality of earned incomes. 
5. In estimating the benefit to be derived from a so-called redis- 
tribution of income, one must take into account the nature of the 
uses from which the redistributed income is taken, and of those 
to which it is put. But the assumption, underlying statistical calcu- 
lations of what is available for redistribution, that the monetary 
value of the aggregate income will remain constant, is not theoreti- 
cally impossible. 6. A man's material welfare depends to some 
extent on the relative as well as the absolute size of his income. 
Under conditions of industrial progress combined with great in- 
equality in distribution, a continually increasing amount of income 
is necessary in order to produce the same degree of material welfare. 
7. Apart from the statistics of the question, and their limita- 
tions, the usual economic ^apologia for the present inequality of 
distribution depends on the assumption that it is favourable to the 
growth of production, and that interference designed to reduce in- 
equality is bound to reduce also the amount to be distributed. Two 
possible grounds for this assumption to be examined. 8. Is 
unequal distribution necessary in order to secure an adequate 
supply of fresh capital? It is probable that a really drastic reduc- 
tion of inequality at the present level of production would lead to 
a reduction of private savings. 9. Alternatives to Private Sav- 



ing. Corporate savings of Companies, already of great importance, 
are not inevitably bound up with unequal distribution of private 
incomes, and could be increased further by legislation or preferen- 
tial taxation. 10. Saving by National and Local Governments. 
Existing examples. Its possibilities and importance would be 
increased by a more equal distribution of wealth. 11. Summary 
of conclusions from 8-10. A much more equal distribution of 
incomes would almost certainly involve the assumption by Govern- 
ment and by organised business of a greater responsibility for 
maintaining and augmenting the equipment of industry. The rate 
of increase of a community's capital is, within limits, a matter of 
deliberate choice. 12. The practical question of what consti- 
tutes an " adequate " supply of fresh capital. The Colwyn Com- 
mittee's estimates. 

13. The effect of changes in distribution on other factors in 
productivity. The Efficiency of Labour is adversely affected by 
present unequal distribution, which is felt, not without reason, to 
be unjust, and therefore does not evoke a willing spirit of co-opera- 

14. It could be greatly increased in the long run, if the surplus 
income of the richer classes were devoted to improving the health 
and education of the people. " Better Breeding," insisted on by the 
Eugenists as of prime importance, is only likely to come about as 
the result of better education and environment. 

15. A rise in the incomes of the poorer classes, resulting from 
equalitarian measures, is not Ijkely to lead to a rapid increase in 
their families rather the reverse. 16. Nor will a more equal 
distribution of incomes necessarily lead to a larger proportion of 
the people being unemployed. In so far as it resulted in a shifting ' 
of demand from luxuries to necessities and from capital goods to 
consumable goods, it would reduce trade fluctuations. And if the 
transfer from rich to poor took the form of better general educa- 
tion, the mobility of labour between different trades would be 

17. Summary of conclusions in 8 to 16. The present in- 
equality of incomes is, on the whole, more favourable to the growth 
of capital than a more equal distribution would be, but less favour- 
able to the growth of human efficiency. The idea that nothing 
should be done which might check the supply of savings is simply 
fetishism. Probably our community could achieve a higher stan- 
dard of productivity and certainly of happiness, if, even at the risk 
of a substantial decline in capital accumulation, it devoted more of 
its resources to improving the environment and quality of its 

18. There remains to be examined the argument that certain 



institutions, that are desirable in the interests of productivity, in- 
evitably create as a by-product great inequalities of income. In 
order to settle the question decisively we need to analyse the causes 
of unequal distribution, and to decide which factors are the most 
important and which can be modified or eliminated without directly 
or indirectly checking productive effort. This book aims at contri- 
buting to such an analysis by selecting one particular factor 
Inheritance and endeavouring to answer the following main ques- 
tions about it: In what ways and to what extent does it cause 
inequality? Is the institution in its present form desirable in the 
interests of productivity? If not, how should it be modified? 



1. The Distribution of Incomes. 

(A) Before the War. Table I. p. 63. 

(B) After the War. Table II. p. 65. 

2. Distribution of " Earned " and " Unearned Incomes." 

Table III, p. 66. 
3. Distribution of Property in England, 1912 and 1924. 

Table IV. (a) and (b). p. 71. 

Distribution of Property. 1924 only, for Men and Women 

Table IV (c). p. 72. 




1. Definition of Inheritance, as a social and economic insti- 
tution. The essential characteristic of the modern institution, which 
has many variations, is that a man's property passes after his death 
to his children, relatives, and friends, and not to the community at 
large. 2. A system of frivate Property could exist without a 
system of Inheritance. But a system of Inheritance presupposes 
private property in durable forms, i.e. in the more durable 
commodities, or in "intangible rights" to future income. 3. 
Inheritance is not the only legal means of acquiring property gratui- 
tously; nor is it the only factor which would tend to make differ- 
ences in wealth hereditary. Gifts between the living are the great 
alternative to the transmission of property at death, but their effect 
on the distribution of property is much the same as that of inheri- 



tance itself. 4. Another gratuitous method of getting property 
is by marriage. 5. Causes, other than Inheritance, and gifts 
inter vivos, of hereditary differences in income : (a) The biological 
factor of Heredity. Ability and the lack of it can certainly be 
inherited. But the economic importance of this factor is liable to 
be greatly over-estimated. 6. (b) A much more important cause 
of hereditary differences in earning power is the fact that well-to-do 
parents can afford to give their children a better education and 
environment than poor parents. These differential hereditary ad- 
vantages could remain if the Inheritance of property were abolished 
to-morrow. But there is less inequality in education and environ- 
ment than in the distribution of inherited property. 



1. If it is to be an adequate guide to public opinion and 
policy with regard to distribution, economic analysis must provide 
an answer to three questions : (1) What are the causes of inequality 
of wealth? (2) How far is each cause inevitable, or desirable from 
other points of view? (3) What is the comparative importance of 
each cause? The three main causes of inequality of wealth are: 
unequal economic abilities, unequal inheritances and gifts of 
property, and unequal luck. 2. Divergence of opinion among 
economists as to the comparative importance of the second cause 
unequal inheritances and gifts. 3. Inheritance cannot be an 
original or primary cause of unequal distribution, but it perpetu- 
ates and may intensify inequalities of wealth arising originally from 
other causes. The actual extent of its influence on distribution can 
only be decided by quantitative analysis of the relevant facts. 4. 
Unequal inheritances affect the distribution of property not only 
directly but also indirectly, by causing unequal ability to accumu- 
late by saving and speculation. 5. Their effect on the distribu- 
tion of earned incomes is obviously much less than that on the 
distribution of property, and is much less important than the effect 
of the other hereditary economic advantages of birth and environ- 
ment. But a large inheritance, though it diminishes the need for a 
large earned income, is undoubtedly an asset in securing one. 6. 
A good deal depends, however, on whether the inheritance is in 
the form of investments requiring no active management, or hi the 
form of a director's or partner's share in a business. The latter 
form of inheritance, both of property and of opportunity, is clearly 
more of an incentive to the exercise of energy and ability on the 
part of the inheritor. The age at which the inheritance is received 



is also of great importance in its effects on the recipient's earning 
power. And for this reason gifts inter vivos have a greater effect 
than bequests at death. 7. The existence of unequal inheri- 
tances is one reason why property is much more unequally distri- 
buted than earnings, but not the sole reason, since savings are 
likely to form a larger proportion of a large than of a small 

8. The influence of inheritance on the distribution of wealth 
must vary in different countries and at different periods, according 
to (1) the laws and customs governing inheritance and bequest; (2) 
systems of taxation; (3) the extent of philanthropic bequests; (4) 
marriage customs; (5) the size of families; (6) the degree of stability 
of economic and political conditions. Factors (1), (3), (4), (5), (6), 
are discussed in the next Chapter, and (2) Taxation is reserved 
for Chapters IX, X, and XL 




1. The freedom of bequest allowed by English law is excep- 
tional. In Europe, the law reserves a certain portion of a man's 
property (the legitim) for the benefit of his family, and only the 
remainder can be freely bequeathed. 2. The legitim regulation* 
of the Code Napoleon, prevailing in France, Holland, and Belgium, 
are the extreme example of the restriction of freedom of bequest 
in the interests of the family. 3. But freedom of bequest is not 
an ancient privilege of Englishmen, since the reservation of a 
legitim for wife and children was enforced all over England in the* 
thirteenth century, remained in force in certain parts of England 
till the end of the seventeenth century, and remains to-day part of 
the law of Scotland. In feudal times, there was no legal right to 
dispose of lands by will, though it was, in effect, possible to do so; 
but not till 1837 was freedom of bequest alike of realty and per- 
sonalty legally ratified. 4. To-day this freedom is only limited 
to the extent that a man cannot " tie-up " his property for more 
than two generations, and*may not keep the income accumulating 
at compound interest for more than twenty-one years after his- 
death, except when the accumulation is to be used for the redemp- 
tion of the National Debt. 

5. The contrast between the effects on the distribution of 
property of "the English and French systems of inheritance has 
been greatly exaggerated by De Tocqueville and other writers. 6. 
The Law of legitim is not a potent instrument for levelling in- 



equalities of inherited property, and cannot do more than prevent 
these being increased. The English law of Primogeniture is of no 
economic importance; but the custom of Primogeniture in landed 
and titled families (though of less importance than formerly) and 
unequal bequests amojig the family in the case of large estates 
generally, do tend to increase inequalities of property in successive 
generations. But very unequal division among the children is 
probably the exception rather than the rule for the English middle 
class. 7. The Death Duty statistics of Britain and France indi- 
cate that property is rather less concentrated in France, but that 
the difference in this respect is not very important nor so clearly 
marked as that, for example, between Britain and Australia. 8. 
The wider diffusion of landed property in France than in England 
is not primarily due to differences in laws of inheritance. The 
continuous sub-division of the French small proprietors' holdings 
was remarked before the Revolution and the introduction of the 
Code Napole*on, at a time when entails were still permitted as in 

Note on Distribution of Wealth in France and Britain . . p. 101 

CHAPTER IV (continued) 


1. Charitable bequests may have the same effect as a Pro- 
gressive Death Duty in moderating the inequalities of inheritances. 
To what extent do they do so? 2. Investigation of a sample 
of large British estates showed the average proportion of the total 
value bequeathed to charities or employees to be between 4 and 8 
per cent. Most of the proportionately large bequests were left, 
naturally, by those with no children to consider, and many were 
in the form of reversions after life-interests by relatives had ceased. 
3. The above results are supported to some extent by the 
Legacy and Succession Duty figures. 4. The proportion of 
French estates bequeathed to public and charitable institutions 
seems to be much smaller than in Britain. This is hardly likely 
to be due to the Law of legitim, since the fortunes of childless men 
and women (from whom charitable bequests are chiefly to be ex- 
pected) are not greatly affected by that law. (Also the proportion 
of French estates passing to other than near relatives seems to be 
little less than in England.) 5. It is probable that charitable 
gifts during life are more extensive than charitable bequests at 
death, and that both form a larger proportion of rich men's wealth 



in the United States than in Europe or Britain (though probably 
on a less munificent scale than a generation ago). But in America 
less respect is paid to hereditary wealth, and there is also a greater 
dependence on voluntary contributions, rather than on taxation, 
for the relief of poverty and for social services. In general, how- 
ever, taxation has been, and is likely to be, a more effective method 
of redressing inequalities of wealth than private munificence. 

CHAPTER IV (continued) 


FAMILIES p. 113 

1. Differences both in the fortunes of wives, and in the number 
of children which they bear, constantly modify the general rule 
that the richer the father the larger the inheritance of the son. 
2. If most rich men married poor women, and most rich women 
poor men, inequalities of inherited property would tend to diminish 
in course of time. Marriages are generally made, however, between 
those in the same social class. But, there is a certain amount of 
economic mixing by marriage that is favourable to the equalisa- 
tion of inheritances. 3. With a rapidly increasing population, 
the direct influence of inheritance on the distribution of wealth is 
likely to be less than otherwise, because the increase of capital is 
likely to be greater; but the distribution of the old inherited capital 
will have a considerable bearing on the distribution of the fresh 
accumulations. 4. If rich men had larger families than poor 
men, there would be a tendency for inheritances to become more 
equally distributed. But, for the present at any rate, the reverse 
is the case. The average upper-middle-class family is only two- 
thirds of the size of the average working-class family. 

CHAPTER IV (continued) 

1. The distribution ofr wealth depends less on Inheritance in 
" New " than in " Old " countries, and more on native ability, 
industry, and luck. But unequal inheritances acquired in the parent 
country have usually played some part in shaping the distribution 
of wealth in its colonies. The case of America considered. It is 
significant that (according to the available figures) relative in- 
equality in the distribution of wealth is even now less in the U.S.A. 
than in Britain, or than in France or Germany before the War, 
and that the difference in the case of Australia is still more marked. 



2. Stability in prices, and in economic and social conditions 
generally, favours the influence of inheritance. But the deprecia- 
tion of money does not of necessity harm inherited fortunes more 
than other sorts of fortunes, since the former are not necessarily 
left fixed in old and depreciating investments. Moreover, the chief 
form of settled property is land, and land has been historically the 
safest investment when money is depreciating. Nevertheless, rapid 
changes in the value of money increase the importance of chance 
and speculation as factors in the distribution of wealth, and reduce 
that of inheritance. And, under such circumstances, the large 
inheritor, when divorced from active business, is often likely to 
fail to safeguard his inheritance. * 

Statistical Note on Distribution of Wealth in " Old " and 

"New" Countries p. 120 



HAS BEEN INHERITED? . . . . p. 124 

1. What is meant by the "inherited property" of a nation 
or community? 2. Since, in modern industrial communities, 
depreciation of capital is regularly reckoned as a cost of produc- 
tion, we ought, for our purposes, to adopt the following definitions 
of the "saved" and "inherited" portions of the "National 
Capital " : (i) The saved portion consists of the net additions made 
by the living to their stock of capital goods, exclusive of repairs 
and replacements of worn-out and obsolete goods in that stock; 
(ii) The remainder is the inherited portion. 3. But (i) is not 
the same as the aggregate of individual savings, (ii) is not the same 
as the aggregate of individual inheritances, and the ratio of (ii) to 
the National Capital is a different and rather larger percentage than 
the proportion of property derived from inheritance in the aggre- 
gate of individual cases. 4. An estimate of the net savings of 
the generation that ended just before the War is made by com- 
paring the valuation o{ British property at the beginning and end 
of the generation (1885 and 1912). Property values as a whole may 
of course vary independently of changes in the amount of goods 
owned, under the influence of other factors, chief of which are 
variations in the price level and the rate of interest. (A fall in 
the value of money or in the rate of, interest will tend to increase 
property values and vice versa.) At the beginning and end of the 
period hi question, there was not a great difference in the price 
level or in the rate of interest; and the increase in the valuation of 



the "National Capital" over the period may be considered as 
representing the net additions to capital made by the generation in 
question. On this hypothesis, and when G iff en's valuation of the 
" National Capital " is made comparable with Sir Josiah Stamp's 
estimate for 1914, the relative proportions of the total due to 
Inheritance and "Saving" work out at two-thirds and one-third 
respectively. 5. An estimate obtained by a different method 
makes the proportions 58 per cent, and 42 per cent, respectively. 

6. There has been no historical tendency in Britain for the 
proportion due to inheritance to increase. Probably, two or three 
hundred years ago, inherited property formed a larger proportion 
of the whole than to-day, but it was a rather smaller proportion 
in the 1880's than in 1913. Although on balance there was little 
or no real saving during the War epoch, inherited wealth forms on 
the average a smaller proportion of private property than before 
the War the decline in its importance being more marked in 
Central Europe than in Britain. 

Note on Increase in the National Capital, 1885 to 1914 . p. 141 




1. Do the larger estates belong, on the whole, to those who 
received the larger inheritances? Is the opinion that most rich 
men to-day owe their fortunes to ability and lucky enterprise, an 
accurate one? 2-4. Details of an investigation of probates 
with a view to comparing the fortunes of parents and children. 
Two samples chosen: the first comprising ninety-nine English 
estates in excess of 200,000 left during the year 1924-5, the second 
124 estates between 10,000 and 200,000 passing in a few weeks 
of 1926. In both cases, the estates and occupations of the fathers 
or other predecessors were investigated for comparison. Limita- 
tions and deficiencies of the information obtained. 

5-6 and Table I. First sample. Comparison of the Estates of 
Predecessors and Successors. 7-8. Estimate of shares of 
parents' estates inherited by the latter. Unequal division between 
the children in the case of the very wealthy, but equal division 
more common in the case of moderate and small estates. 9 and 
Table II. Occupation and Social Status of the Fathers of those in 
the First Sample. 

10 and Tables III (a) and (b). Second Sample. Comparison 
of Estates of Predecessors and Successors, etc. 1 1 and Table IV. 



Occupations and Social Status of Fathers and Sons. The propor- 
tion of sons in each class with working-class parents. 12 and 
Table V. Analysis of the occupations of sixty-two " self-made" 
men. (Both Samples.) 13 and Table VI. Summary of chief 
results of the investigation, bearing on the hereditary character of 
the inequality of property. Only a minority of wealthy men have 
built up their capital without the aid of inheritance. The large 
fortunes of women almost entirely due to inheritance and marriage. 
Difficult and comparatively rare for poor men to acquire much 
property by their own activities within their own lifetime. 

14. A brief review m of the economic history of the author's 
family indicates the large part played by the luck of inheritance 
and marriage, and shows how the widely differing fortunes of the 
present descendants of the three main branches were largely pre- 
determined five generations back. 

APPENDIX p. 183 

List of Persons and Estates included in the samples investigated. 




1-2. Estimates, based on the Estate Duty figures, of the 
distribution of property at different ages (both for pre-war and 
post-war years). See Tables and Charts in Appendix. It is signifi- 
cant that the relative distribution of property is very similar at 
all ages from thirty-five onwards; comparative inequality is about 
the same among the older as among the younger sections of the 
upper and middle classes. 3. Since a larger proportion of the 
property of the younger section must be derived from inheritance 
(and gifts inter vivos\ the figures suggest that the influence of the 
latter on the distribution of fresh capital or " savings " must be 
considerable. Also significant that women's property is distributed 
in much the same proportions as that^>f men. 

4. Other observations from the statistics are: (i) that the 
average estate of all classes within the richest tenth of the people 
increases up to the most advanced age but at a much slower rate 
after sixty or so, while, after that age, among the poorer classes, 
actual decumulation can be observed. The reasons not far to seek, 
(ii) that probably there is, on the whole, no marked difference as 
between large and and moderate estates in the proportion derived 
from inheritance and gift, among persons of the same age; but the 



larger estates belong on the whole to older people who have had 
more time to accumulate. 

APPENDIX p. 193 

TABLE I. Average Estate of Richest Tenth of the People at 

Different Ages. England. 1911-14, and 1923-5. 
TABLE II. Minimum Estates of Different Sections of the People at 

Different Ages, (a) 1911-14. (b) 1923-5. 
TABLE III. Average Estates of Different Sections of the People at 

Different Ages, (a) 1911-14. (b) 1923-5. 
CHART I. Distribution of Property at Different Ages. England. 

CHART II. Distribution of Property at Different Ages. England. 

CHART III. Minimum Estates of Different Classes at Different 

Ages. 1913 and 1924. 




1. The influence of inheritance on the history of social 
classes. 2. Can our system of inheritance indefensible in its 
effects on distribution be defended for its effects on production, 
or on other grounds? Ethical considerations. 3. Freedom of 
Bequest, not the claims of family dependants, is the key-note of 
the English law. It is not a " natural right," and private property 
could exist quite well without it. 4. The claims of the next of 
kin to inherit (observed in England only in cases of intestacy, but 
safeguarded by the Law of legitim in Europe) have not the moral 
justification sometimes ascribed to them. What is the basis of A's 
claim to inherit one hundred times as much as B? Is it more 
unfair to disappoint established expectations than to establish un- 
reasonable expectations? J. S. Mill on the subject. 5. The 
Law of legitim no more just than Freedom of Bequest. 6. The 
Law of Inheritance in cases, of intestacy an anachronism in modern 
England. The claims of distant relatives attacked by Bentham and 
Mill. 7. General weakness of ethical arguments. Economic 
effects to be considered. 8. The effect of large inheritances 
on those who receive them is directly unfavourable to production. 
9. The curious idea that large inheritances are desirable as an 
encouragement to industry on the part of those who do not receive 
them. Views of McCulloch, Taussig, and Mill. 10. Is a leisured 
class of inheritors necessary for the development of Science and 



the Arts? ~(i) " The Arts of civilised life were forced into being by 
the unequal distribution of wealth " (ii) Genius is protected from 
economic necessity by inheritance. 11. (i) may be historically 
true, but an example of what to avoid. In modern Britain, responsi- 
bility for the promotion of science and an is devolving more and 
more on the State, the Universities, and other Corporate bodies. 
12. With regard to (ii) above, it is not true, in modern times at 
any rate, that most of the greatest thinkers were dependent on 
inherited means. Nor, if it were true, would it be a reason for 
unlimited inheritances. 13. Inheritance as an aid to virtue. 
Plato's view and Bertrand Russell's. 14. The economic justi- 
fication of the Right of Bequest. Necessary as an incentive to- 
saving. Taussig's opinion. 15. But it has no such influence 
on the alternative sources of fresh capital viz. Corporate and State 
saving. 16. Nor can it be a strong motive for accumulation in 
the case of those without wives or children, who form a consider- 
able proportion of the rich. 17. Lastly, domestic affection and 
family ambition, as a motive for saving, would not be seriously 
thwarted by the abolition of inheritance, provided the right of gift 
during life remained. Gifts inter vivos in early manhood are more 
useful to heirs than inheritances received after middle age. 



TAXATION p. 217 

1. The nature of the British Death Duties. The effect of the 
Estate Duty, in modifying inequality of inherited wealth, illustrated 
by Table of estates subject to duty, and duty pay able ; in 1925-6. 
2. Defects of the Death Duties from the equalitarian stand- 
point The Estate Duty is graded according to size of estate, not 
of inheritance or bequest; and the Legacy and Succession Duties 
are progressive, not according to amount, but according to distance 
of relationship. The latter are an anachronism, but to-day are 
overshadowed by the Estate Duty. 3. A progressive tax on 
inheritances presents more administrative difficulties than the Estate 
Duty, but could be effectively administered. 4. The Death 
Duties take no account of the previous wealth of inheritors. If a 
highly progressive inheritance tax were introduced, it should be 
graded according to the total amount inherited and not merely 
according to the size of the individual bequest or inheritance, and 
should apply also to gifts inter vivos. 5. The present Duties 
take some account of differences in needs of inheritors by abate- 
ments for widows and young children. But in some ways they 



differentiate against charitable bequests. 6. Their chief defect, 
as a means of reducing inequality, is the omission from their scope 
of most Gifts inter vivos. There should, however, be some differen- 
tiation in favour of the latter. 7. The fact that estates pass at 
varying intervals of time does not render the Death Duties in- 
equitable, nor does the fact that the capacity to make provision 
against them, during life, varies widely in individual cases. 

8. Do Death Duties reduce the supply of capital? Both 
Death Duties and Income Tax are paid out of somebody's income 
and not out of existing capital; and the revenue may be used as 
Capital, if the Government wishes. 9. Most fallacies regarding 
Death Duties may be traced to neglect of three self-evident 
theorems : (i) that the immediate effect of all taxes is to reduce the 
amount that can be saved by private persons, (ii) that the savings 
of the latter are not the only source of fresh capital, (iii) that less 
capital does not necessarily involve less productivity. Corollaries 
of these theorems. It is no valid) argument against a tax, that it 
reduces the ability of the wealthy to save. But no tax should dis- 
courage private industry and economy. 10. Do Death Duties 
discourage work and saving? Opposing views on the question. 
The chief arguments used of no great importance, while the alter- 
native of gifts inter vivos remains largely tax free. 11. Con- 
sider the psychological effects of a progressive tax on property 
acquired both by inheritance and gift, assuming that the tax cannot 
be evaded. It would encourage work in certain cases. 12-15. 
Various motives for Saving are distinguished, and the effect on each 
of an inheritance and gifts tax is considered. Those with no 
dependants and those accumulating from love of power and 
achievement would be unaffected. 16. A tax graded so as 
virtually to prevent inheritances above a certain figure would 
evidently discourage saving on the part of parents able and willing 
to leave more than that maximum to their children; but it is not 
likely to discourage the ambitious " self-made " man. 17. The 
discouraging effects of imposing a moderate limit to inheritances 
might be expected to wear off in a generation or so, since the class 
of large inheritors most likely to be discouraged would be in course 
of elimination. 18. Summary of conclusions from 12-17. 
19. The comparative effects on work and saving of an Income 
Tax and Death Duties. The opinion of the Colwyn Committee 
cited. 20. An inheritance tax does more than a general property 
tax or Income tax to satisfy the principle that taxation should 
differentiate against " unearned " property and incomes. But in- 
heritance is not the only form of unearned property; and it would 
also be quite impracticable to replace the whole of our existing 
Income and Super-Taxes by inheritance taxation. 






1. Legal methods of evading Death Duties. 2. The ad- 
vantages of the Private Company. 3. The problem of illegal 
evasion. 4. The problem of Gifts inter vivos. Only a small 
percentage caught by Death Duties. Table showing Gifts inter 
vivos paying Stamp Duty 1910-26. An estimate of the grand total 
to-day. 5. Gifts are in many ways more estimable than be- 
quests at death, but an effective and equitable Inheritance Tax 
system must tax the former also. 6. To extend the period 
before death during which Gifts are liable to Estate Duty is not 
alone a satisfactory solution, either from the theoretical or the 
administrative standpoint. 7. The taxation of all large gifts, 
during the life-time of the donor, is theoretically desirable, but 
presents certain practical difficulties. The administrative problem 
considered. 8. Possible checks on dishonest declaration. The 
tax might at first be confined to super-tax payers. 9. The 
donee should be responsible for paying the tax, but where possible 
it should be deducted before the gift is received. 10. The tax 
should be progressive according to the total property received by 
way of gift or inheritance. Administrative feasibility of the scheme. 
The indifferent success of taxes on gifts in other countries is no 
criterion with reference to Britain. 




1. Rignano's proposals have been the basis of various recent 
suggestions for the reform of the Death Duties. His " maximum " 
programme considered. Two new principles involved: the distinc- 
tion between the inherited and non-inherited portion of each estate; 
and graduation of tax according to the number of times each estate 
has passed, so that, for example, an inheritance may be abolished 
in the third generation. 2. If capable of perfect administration, 
such a tax could not discourage saving. 3. But it would not be 
so equitable in its effects on distribution as a straightforward Estate 
Duty or Inheritance Tax. It neglects the fact that what a man 
saves is partly determined by what he inherits. 4. And it 
differentiates against the heirs of short-lived parents. 

5. Rignano's " minimum " programme a graduated Estate 



Duty differentiating against the inherited portion of estates is 
simpler and more equitable and can be no less drastic than the 
" maximum " project; 6 and its effects on the incentive to save 
may be no less advantageous. 7. The deferred inheritance tax 
proposed by Rignano could be converted, on an actuarial basis, 
into a direct inheritance tax, and differs from the latter in degree 
rather than in principle. 8. Rignano's proposals are not 
capable of perfect administration in the spirit intended, since the 
distinction between " saved " and " inherited " property is not clear 
and definite, and much non-inherited property is the result of anti- 
social enterprise. His scheme might encourage inheritors to specu- 
late, as much as to save. 9- 10. Except in the case of settled 
property, the distinction between Inherited and Non-inherited 
property is bound to be arbitrary. It might be possible to allow 
for changes in the value of money and the general rate of interest, 
but not for shifting values in individual cases. Thus the tax may be 
thought to favour the lucky and unscrupulous. 11. Gifts inter 
vivos present a more difficult problem than in the case of a straight- 
forward inheritance tax, and the danger of concealment and evasion 
may be greater. 12. But, if all gifts were traceable, the Rignano 
scheme would differentiate in favour of the avaricious. 

13. Suggestions made with the object of rendering the opera- 
tion of the Rignano principle more equitable and efficient, (i) To 
settle large inheritances and gifts in the hands of the Public Trustee 
would involve far-reaching changes both in the latter's office and 
in the relation of State to Industry, that may or may not be desir- 
able, and there are other objections. 14. (ii) The modified 
proposal to convert into an annuity the portion of an estate ulti- 
mately taken by the State involves the same objections and diffi- 
culties if the tax is very high. The Colwyn Committee's objection, 
that a reduced capital sum is more likely to encourage thrift on 
the part of an inheritor than conversion to an annuity, applies 
equally to other applications of the Rignano scheme. Conversion 
to annuities for a fixed term would be more equitable than annui- 
ties for life. 15. (iii) A third proposal is to modify a straight- 
forward inheritance tax, by allowing the larger taxpayers to con- 
vert part of the duty into a deferred tax at a higher rate payable 
after a fixed term of years, sufficient " cover " for the deferred 
tax being deposited with the Treasury. 

16. More drastic inheritance taxation should be accompanied 
by an extension of the forms in which the tax may be paid. These 
should include, at least, all " gilt-edged " securities. 

17. There is no fundamental reason why Death Duties or 
Inheritance taxes should be " ear-marked " for Debt redemption 
or other capital purposes. But it may be expedient for Govera- 



ment to apply part of the revenue to permanent investments, since 
drastic taxation that reduces inequalities of wealth reduces also the 
surplus available for private saving. 

Table showing Composition of Estates Paying Estate 

Duty (Great Britain) in 1925-6 . . . . p. 275 






1. ALL established institutions are likely, within the present 
century, to have to justify themselves afresh in the eyes of the 
modern world above all those institutions which shape our 
economic life. The inheritance of property long neglected by 
professional economists or accepted unconsciously and without 
question as an inevitable ingredient in orderly society has re- 
cently begun to receive its fair share of criticism and doubt. It 
is the aim of this book to consider how far, if at all, the systems 
of inheritance, which prevail in modern states, perform a func- 
tion which can be justified from the economic point of view. 

In passing judgment upon the value of an institution, as a 
factor in material welfare, its effects both on production and 
on the distribution of the product must be examined. It is a 
common view of our system of inheritance that its effects on 
the former are good but on the latter bad. Hence it is as well 
to consider at the outset what degree of importance should be 
attached to the claims of distribution, on the one hand, and of 
production, on the other, and to observe in what general re- 
spects those claims are likely to be conflicting or harmonious. 
Consequently I make no apology for devoting this first intro- 
ductory chapter to a brief discussion of this question. 
Throughout I have confined myself to purely economic con- 

During the last fifty years there has been a marked change 
in the attitude of economists towards questions of distribution. 1 

1 For a brilliant and concise review of the attitude of past and 
present economists towards the subject-matter of their science, see 



The significance of the change is hardly yet fully realised, but 
it is implicit in the more liberal interpretation of " wealth " as 
the subject-matter of economic science. Eighteenth-century 
writers before Adam Smith had considered the wealth of a 
nation as its stock of material goods, when they did not fall 
into the worse error of thinking it to be its gold and silver. 
Adam Smith defined it rather as the material goods annually 
produced. Income in the form of " services " was allowed to 
be wealth by later writers in the early nineteenth century. But 
during the hundred years which followed the Wealth of 
Nations, the orthodox economists, when they spoke as 
economists and not as social philosophers, threw the whole em- 
phasis on the quantity of goods and services produced, and 
considered as a non-economic question the satisfactions en- 
gendered by those goods and services. Certainly to the traders 
and manufacturers who formed the chief audience of the 
economists, production appeared as an end in itself. 

The introduction of Jevons' theory of value, with its em- 
phasis on " utility," marked a turning-point in the trend of 
economic thought. Since that time, it has become increas- 
ingly obvious that economic analysis, to be adequate, must look 
beyond the actual commodities and services received to the 
satisfaction or enjoyment derived from them. In recent years 
the scope of economic science has been consciously enlarged so 
as to treat of the " wealth " of a state as the material welfare 
of its inhabitants a psychological concept rather than the 
tangible objects and measurable services produced by them. 1 

Caiman's Wealth, Chapter I, where he concludes : " The subject- 
matter of economics has become utility or satisfaction minus dis- 
utility or dissatisfaction, so that if we retain ' wealth ' as its com- 
pendious description, we must take 'wealth' as having reverted 
to its old meaning of a particular state or condition of human 
beings" (p. 13). See also earlier papers by the same author 
reprinted in The Economic Outlook (1912). In a paper read to the 
Fabian Society in 1889, he had pursued the same lines of criticism 
of the old conception of " wealth," and the " classical " treatment 
of " Distribution." 

1 See footnote on previous page. 



With this definition in the background, the full implications of 
the theory of the diminishing utility of successive additions to 
income are realised, and it becomes obvious that great inequali- 
ties in the division of the product of industry among the in- 
dividuals concerned are not only socially deplorable but an 
economic defect in the social system. 1 

It would probably never have been seriously disputed that 
an extra gives more satisfaction to a man with 100 a year 
than to one with 1,000 a year, but when the statement was 
elaborated as a fundamental proposition in economics, it had 
all the force of a revolutionary idea. 2 

1 Cp. Caiman, Economic Outlook, p. 178, from a paper read to 
British Association in 1902. " Moralists and Statesmen have long 
seen the evils of great inequality of wealth, and now, thanks to 
modern discoveries in economic theory, the economist is able to 
explain that it is wasteful." Henry Sidgwick was one of the first 

' economists to state this conclusion clearly and definitely in his 
Principles in 1883, in the section devoted to the " Art of Political 
Economy." But he derives the conclusion from Bentham rather 
than Jevons. In Chapter VII, Bk. Ill, he wrote: "The more any 
society approximates to equality in the distribution of wealth 
among its members, the greater on the whole is the aggregate of 
satisfactions which the society in question derives from the wealth 
that it possesses." But he is careful to add that " this inference 
is only legitimate under certain conditions, viz. that the total 
amount of produce to be divided and the number of persons 
among whom it is to be divided remain unaffected by the change 
in distribution; and, further, that the change has no tendency to 
diminish the happiness of the community so far as it is derived 
from other sources." 

2 The actual extent of the loss of material welfare, resulting 
from a given inequality in the distribution of a given national 
income, is of course purely a matter of opinion. Bernoulli! sug- 
gested that, in general, equal proportionate additions to income 
over and above a minimum of bare subsistence brought equal 
absolute increments of pleasure, while Cramer supposed that the 
pleasure derived from income varied as its square root. (See note 
in Marshall: Principles, p. 135.) For either of these propositions 
to be reasonable, we have not only to think in terms of average 
families with average needs, but also to suppose that the trouble 
involved in getting a given income is the same in each case thus 
neglecting the obvious distinction between "earned" and "un- 



2. It is now indeed frankly recognised that the " wealth " 
of a community depends not only on the total product per 
head, but also on two other factors, namely the amount of un- 
pleasant effort involved in achieving that total, and the way in 
which it is distributed among the individuals concerned. But 
there is still a tendency to consider problems of production as 
of paramount importance. Sidgwick's suggestion that we have 
to choose between an unequal distribution of wealth and an 
$qual distribution of poverty still gains a wide measure of ap- 
proval. 1 Such arguments have, in recent years, been rein- 
forced by inferences drawn from statistics of the " National 
Income." Statistical calculations are now employed as a 
warning that there is, in fact, at present, so little surplus in- 
come to distribute that redistribution without increased pro- 
duction could, at best, do little good, and might, under circum- 
stances unfavourable to production, do much harm; and that 
the cure for " social distress " is to be found rather by increas- 
ing the product and letting distribution look after itself, than 
by a more equal division of the present total. " In centring our 
teaching and our hopes upon the point of redistribution to pro- 
earned" incomes. It is, however, interesting to note that, if we 
apply Bernouilli's theorem to the official table of the distribution 
of private incomes after payment of Income or Super-Tax in 
1919-20; add an estimate of 100 a year per head of the thir- 
teen million occupied persons below the Income-tax limit of 130; 
and assume the bare minimum of subsistence to be 60-65 a 
year the result is that the total amount of "pleasure" or 
"material welfare" derived from the aggregate of private tax- 
free incomes is only 77 per cent, of what it would have been if 
the incomes had been equally distributed. If the bare subsistence 
limit is put higher, the loss of welfare works out as a greater per- 
centage and vice versa. There is na particular virtue in this cal- 
culation except as an indication that it is quite conceivable that a 
more even distribution of income, even if accompanied by a sub- 
stantial reduction in the total, might still be of economic benefit. 
Marshall himself (Principles, p. 135) seems to have accepted Ber- 
nouilli's theorem as a working hypothesis. 

1 Sidgwick, Principles, Bk. Ill, pp. 505ff. "The objection to 
Socialism is not that it would divide the produce of industry badly 
but that it would have so much less to divide." 



duce greater well-being,*' says Sir Josiah Stamp, "we are 
' barking up the wrong tree,' and diverting attention from the 
more real and powerful remedies. The economic millennium 
does not lie along the line of redistribution and equalising the 
present total. The effect of this course is a percentage addition 
to the lower level which compares unfavourably with the 
automatic additions that came in two or three decades of in- 
dustrial peace and progress in the Victorian era; or that would 
come from a substantial measure of disarmament or that ordin- 
arily results where piece-work is substituted for time-rates." * 

3. Certainly the statistics of the question cannot be ig- 
nored if we are to see the problems of distribution in their 
proper perspective. But before accepting the inferences which 
are usually drawn from statistical results (such as those quoted 
above), we need to scrutinise both the figures themselves and 
the theoretical assumptions on which such inferences are in 
fact based. It is evident, for example, that one important as- 
sumption is that a more equal distribution of wealth is less 
favourable to production than the present inequalities. For, if 
we assume the contrary namely that greater equality of 
wealth would be more favourable to the growth of productivity 
or would leave it entirely unimpaired then there is no ques- 
tion of a contrast between alternatives but rather one of addi- 
tional benefits. It is, in fact, quite commonly assumed, by 
those who use the statistical argy/nent, that under conditions 
of much greater equality production per head would probably 
actually decline, and could not, at best, do more than remain 

But before discussing the more far-reaching issue the statis- 
tical part of the argument requires examination. Sir J. C. 
Stamp's and Dr. Bowley'S joint analysis of the National In- 
come in 1924 does not, I think, give statistical confirmation to 
the former's earlier opinion quoted above. 2 Accepting the 
semi-official estimate of the National Savings as between 450 

1 The Christian Ethic as an Economic Factor, p. 44. 

2 Still less does it confirm the wilder generalisations of lesser 
authorities e.g. Dean Inge in his England, having quoted some 

B 33 


millions and 500 millions in that year, 1 they put the average 
amount " spent freely " on articles of current consumption as 
270 a year per family, 2 while the average earnings per wage- 
earning family were about 190 a year " an unknown part of 
which went in taxes and rates." Hence on the assumption, 
necessary for all calculations relating to redistribution, that the 
total monetary value of the measurable elements in the national 
income is not altered thereby a complete pooling of the total, 
after making the same provision as at present for saving and 
for the public services, would add at least over 30$. a week of 
spendable income to the average earnings of a working-class 

Thus, these figures, so far as they go, indicate that the truth 
lies somewhere about midway between the two extreme 
opinions, on the one hand, that our present productive capacity 
is sufficient to banish poverty if the shares in the total were 
equally distributed, and, on the other, that redistribution in 
itself could accomplish little or nothing, in the absence of a 
great increase in production. 3 But the usual statistical treat- 

estimates by Dr. Bowley relating to* the National Income in 1911, 
says (p. 191): "It is thus demonstrated that, even if the National 
Income could be preserved intact after being pooled, which it 
certainly could not, the skilled labourer would have nothing to gain 
by the operation, and a high standard of living for all alike is out 
of the question." (My italics.) Note that Dean Inge makes the 
common assumption, to which I have referred, that under con- 
ditions of much greater equality the productivity per 'head of the 
community must fall below its present level. 

1 See Colwyn Ctte. Rep. on Nat. Debt, etc., para. 45, p. 17. 

2 After deducting the estimated savings, rates, and taxes. The 
average " social income " per family-rafter deducting only dupli- 
cated elements in the aggregate of money incomes was about 
360 a year. One may question whether savings which add to the 
individual's property and security should be deducted from the 
distributable surplus, if a strictly fair impression is to be made 
on the mind of the layman. For the increased ability to save is 
one of the economic benefits which come with an addition to 

* Pigou, Economics of Welfare, p. 83, after citing Dr. Bowley's 



ment of the question has certain serious limitations, which, if 
disregarded, are likely to lead to a misconception of the relative 
importance of a more equal distribution. 

4. In the first place 1 " earned " and "unearned" in- 
comes of whatever character are lumped together without dis- 
tinction in arriving at the distributable total. Investment in- 
comes, profits, annuities, and salaries of the same yearly 
amount, are treated as exactly equivalent, in reckoning the 
average income per head, the extent of inequality, and the pos- 
sible addition to the lower incomes to be effected by redistribu- 
tion. Consequently the incautious user of the statistical results 
is liable to forget that these different categories of income are 
not in fact equivalent. An income derived from secure invest- 
ments is obviously worth a great deal more than the same in- 
come from work. In Sir Josiah Stamp's phrase, the latter stops 
when you stop '; the former does not, and it continues to be 
enjoyed by your posterity. Again, the earned income involves 
a sacrifice of leisure and the performance of perhaps unpleas- 
antly hard work; the investment incomes does not. Lastly, a 
wage or salary can rarely be capitalised in times of special 
need, such as illness (except by means of insurance payments), 
while income from property, unless the capital is " tied up," 
can within limits be increased at will, by selling or mortgaging 
part of the principal. Thus, in general, the possession of pro- 
perty confers on its owner a sense of security and indepen- 
dence, which are important elements in economic welfare. 
There is no need to elaborate the argument here. Everyone 
knows that a capital of 10,000 yielding interest at 5 per cent, 
is far more worth having than a job at 500 a year. This is 
still more obvious when it is remembered that, so far from the 

figures relating to the pre-war distribution of incomes in the 
United Kingdom, concludes that "when all qualifications have 
been made, the figures . . . leave no room for doubt that there 
was before the War a substantial excess income in the hands of 
the richer classes available, in Dr. Bowley's phrase, 'for attack" 
by way of transference. There is no reason to suppose that things 
are different now." 

1 See Fundamental Principles of Taxation, p. 83. 



two alternatives being mutually exclusive, the man with 10,000 
worth of property stands a better chance of earning the extra 
500 than the man with little or no capital. 

Hence the extent of inequality in the distribution of wealth 
must be gauged not only by the figures relating to the distribu- 
tion of incomes, but also by those of the distribution of capital. 

It is a matter of common observation that property is much 
more unequally distributed than incomes, and investment in- 
comes more than earned incomes. Calculations based on 
official statistics show that the section forming the richest tenth 
of the population x gets approximately four-tenths of the ag- 
gregate income from all sources, but nearly nine-tenths of the 
total income from property, and only about one-quarter of the 
" earned " income. (The word " earned " must here be inter- 
preted in the Income-tax sense, to include private business 
profits and professional incomes, where no distinction can be 
made in practice between the parts derived from capital and 
from labour. Wages and salaries alone form a still smaller 
proportion of the total incomes of the richer classes.) 2 The 
richest 1 per cent, get over one-fifth of the total gross income, 
about two-thirds of the income from property, and only about 
7 or 8 per cent, of the aggregate " earned " income. Income 
from property forms about 30 per cent, of the total aggregate 
income 8 : but in the case of super-tax payers with over 10,000 
a year the proportion is over 70 per cent., in the case of in- 
comes under 500 a year, little more than 5 per cent. Hence, 

1 Excluding wives and children not in industry. 

3 For the details of these estimates, see Appendix at end of 

* See Bowley and Stamp, National Income, 1924, p. 52. If all 
pensions and employers' contributions to insurance funds are in- 
cluded in earned income, the proportion which the latter bore to 
the total aggregate income was estimated at 68 per cent, in 1911 
and 71i per cent, in 1924. Earned income is used here in the 
Income-tax sense and includes profits of private persons and 
firms employing their own capital. If interest on the latter were 
included in the share of Property, this would certainly be over 
30 per cent. 



in a statistical examination of the effects of redistribution at the 
present level of production, we have to remember that an equal 
division of property would make very much more difference in 
levelling the economic status of individuals, and involve a much 
greater proportionate benefit for the classes below the average, 
than the equalisation of earnings. This is one reason why a 
fair impression of the significance of the figures is not ob- 
tained, when all incomes are lumped together as homogeneous 
and the surplus thus estimated as available for redistribution 
is treated as comparable with a similar sum gained by way of 
increase in wages. 

5. In the second place, if the figures are to have any real 
significance, one cannot leave out of account the means by 
which the supposed transfer is to be effected, and the form of 
the addition which is to be made to the poorer incomes. It is 
clear that the actual benefit which the community might derive 
from a so-called redistribution of income must be gauged not 
merely by the nominal value of the surplus transferred from 
rich to poor but also by the nature of the uses from which it is 
withdrawn and the nature of the uses to which it is put. The 
extent of the surplus actually available will also largely depend 
on the same factors. But the fuller implications of this state- 
ment remain to be discussed later. 

It is sometimes implied that the statistical calculations with 
which we have been dealing are robbed of all utility because 
they depend on the assumption that it is possible for the mone- 
tary value of the aggregate income to remain constant through- 
out changes in its distribution. 1 But the assumption is not, 
theoretically, a complete impossibility. It involves the hypo- 

1 There cannot, of course? be a change in the distribution of a 
given national income of definite goods and services. But Prof. 
Pigou's definition of what he means by a change in the distribu- 
tion of the " national dividend " seems to me satisfactory. " What 
I mean when I say that the distribution of the dividend has 
changed in favour of the poor is that, the general productive 
power of the community being given, poor people are getting more 
of the things they want at the expense of rich people getting less 
of the things they want." Economics of Welfare, p. 77. 



thesis, first, that the general level of prices would not alter, in 
spite of inevitable alterations in the prices of particular articles, 
and second, that the labour and capital now employed in 
supplying goods and services, which might under the new dis- 
pensation become superfluous, could be employed equally pro- 
fitably in other ways. Those are not in themselves impossible 
hypotheses, when one is considering a change to greater 
equality of distribution which is sufficiently gradual for in- 
dustry to adjust itself without much friction. The numbers 
and incomes of those who depend chiefly on the richer classes 
for their livelihood are certainly likely to diminish, but it is not 
impossible that the diminution in the monetary aggregate of 
their incomes should be counterbalanced by an increase in the 
number and remuneration of those supplying other services. 
Thus the common assumption that much of the money value 
of the surplus would necessarily disappear in the process of its 
redistribution is invalid. 1 We shall return to the wider aspects 
of this question. 

6. But there is another reason why we should not accept 
at its face value a comparison between the arithmetical result 
of equalising the present income of our society, and the actual 

1 Cp. Stamp, British Incomes and Property, p. 419. "Ex- 
changes are going on between people upon one plane, for ser- 
vices at a valuation belonging to that plane, and never brought 
into comparison with values on a lower plane. If there were equal 
redistribution, that plane of values would not exist. . . . Prob- 
ably the change concerns commodities only to a very small extent 
and personal services to a much larger extent. ... If ... we 
had a redistribution of existing capital wealth, socialistically, 
many services would alter in value; no physician would get dif- 
ferential fees for identical services. But it is a mistake to suppose 
that the only change would be a reduction of certain values and 
therefore a reduction in the aggregate. Certain services would rise 
in value because of the wider effective demand. ... It is, how- 
ever, as well to remember that we cannot divide up the aggregate 
and rearrange it to the same total. It is rather more like the 
cells of an organism. At the same time it is clearly possible to 
exaggerate the importance of this point, and the figures we have 
are sufficiently stable and homogeneous in component exchange 
values for all ordinary purposes." 



increase of incomes achieved during the last century under 
conditions of great inequality. It is that the actual degree of 
material welfare resulting from a given income depends, among 
other things, on the wants and needs realised by the recipient; 
and the material desires which the latter experiences and wishes 
to satisfy depend not only on the particular conditions of the 
individual, but largely on what he sees around him and the 
state of the civilisation in which he lives. 

Material welfare has no significance except in its relation to 
men's feelings and as one element in the psychological state 
called happiness. And the extent of a man's happiness de- 
pends on the number and intensity of the desires which he is 
able to satisfy relative to the number and intensity of those 
which he is not able to satisfy. For this reason, certain re- 
ligious teachers have striven to achieve happiness by eliminat- 
ing all desires save those which they believed were capable of 
complete and permanent satisfaction. By contrast, in the 
search for material welfare, our modern civilisation under con- 
ditions of industrial progress is continually manufacturing new 
and previously unwanted sources of pleasure, so that the old 
luxuries become the new necessities, alike for those who can 
and those who cannot afford them. Hence, where there is a 
great inequality of purchasing power, a continuous increase in 
the statistical total of goods and services produced per head 
will no doubt enable a larger and larger proportion of the 
people to satisfy certain wants, but will, equally certainly, in- 
crease the number of wants which the majority desire to satisfy, 
and only the minority can. Thus a continually increasing 
amount of income becomes necessary in order to produce the 
same degree of material welfare. 1 

1 The fact that the satisfaction which a man gets from a given 
income depends to some extent on its relative as well as its abso- 
lute amount was recognised by J. S. Mill when he wrote : " Men 
do not desire to be rich but to be richer than other men." (Post- 
humous Essay on Social Freedom. Quoted in Pigou: Economics 
of Welfare, p. 79.) Probably this desire is often due, among men, 
not so much to covetousness or vanity as to the desire for the 
economic power which comes with a relatively large fortune. Ex- 



Though the amount of goods and services enjoyed by the 
poor man in 1924 may be enormously greater than those en- 
joyed by his predecessor in 1824, the former's poverty is prob- 
ably little less tedious and unpleasant to him than an actually 
more grinding poverty was to the latter. 

One cannot gauge the comparative effects on material 
welfare of an increase in the income of the poorer section of 
the people that results, in the one case from a redistribution at 
the present level of production, and in the other from an in- 
crease in production over a period of time with no change in 
relative distribution, merely by setting side by side the statis- 
tical estimates of the extent of the increase in the two cases. 
For, in the first place, the additional income to be gained by 
the poorer section is of a different character in the two cases, 
and, in the second place, the extent of its needs and desires 
cannot be taken as constant or independent of the scheme of 

7. So far, our criticisms have related to the limitation of 
statistical estimates as a guide to the importance of distribution, 
and were largely independent of our opinions as to the effect 
of distributive changes on production. Apart from such limita- 
tions, however, the validity of what may be called the statistical 
apologia for inequality depends on the assumption that the 
existing scheme of distribution is favourable to production, and 
that interference designed to reduce inequalities of wealth must 
necessarily cause the product per head to decline, or at any rate 
to be less than it would have been in the absence of such inter- 
ference. 1 We have now to examine the grounds for such an 

penditure on competitive display is perhaps more prevalent among 
women. In the latter case, it is no doubt true, as Rignano says, 
that " it is only the existence of great riches, which makes neces- 
sary for such satisfaction a very large, instead of a very small 
expenditure. 4 ' (Quoted Pigou: op. cit., p. 79.) 

1 If the assumption is valid, the existing scheme of distribution 
cannot be the best from the point of view of production, but 
ought to be still more unequal, since a good deal of interference 
by the State in an equalitarian direction already takes place. 



It is desirable to point out, first of all, that we ought to con- 
sider productivity or productive power rather than the actual 
product per head. For an increase in the latter may or may 
not be economically desirable, according to whether or not any 
additional "disutility" such as a decrease in leisure in- 
volved in achieving the increase is more than counterbalanced 
by the extra " utilities " produced. But an increase in the 
capacity to produce, enabling a society to get more per head 
with the same effort and trouble or the same amount with less 
effort and trouble, according to its preference, is obviously 
desirable from the economic point of view. I shall therefore 
consider the effect of distributive changes on " productivity " 
rather than on production. 1 

The assumption in question can only be valid if either or 
both of the following propositions are true: (1) that the en- 

1 I use the word "productivity" rather than "productive 
power," because the latter term is sometimes used to denote capa- 
city to produce with a given equipment, if every available pro- 
ducer and all available equipment could be fully employed; where- 
as by "productivity" I mean the capacity to produce at will, 
under the circumstances prevailing. 

On the general question see Pigou (Economics of Welfare, p. 76, 
note) where he says : " It should be noticed that one of the 
things to which people will divert consumption, if distribution is 
altered in favour of the poor, is the quasi-commodity, leisure. 
. '. . Leisure is not included as a commodity in my definition of 
the national dividend: and in so far, therefore, as improved 
distribution causes leisure to be substituted for things, it must 
involve a decrease in the national dividend. Plainly, however, 
this sort of decrease should be ignored when we are considering 
the effect of changes of distribution on economic welfare; for the 
loss of welfare associated with the construction of production to 
which they lead is necessarily less- than the gain of welfare due to 
the leisure itself." (My italics.) Sidgwick, however (Principles, 
Bk. Ill, Chap. VII, p. 520) seems to think that people tend to 
over-value leisure, and that therefore a voluntary reduction in 
output in order to increase leisure might in fact involve a reduc- 
tion of economic welfare. But, unless we consider that there is 
some absolute measure of economic welfare, independent of the 
feelings of the individuals directly concerned, we must surely 
accept Pigou's rather than Sidgwick's opinion on the matter. 



vironment of great inequality (apart from its causes) is neces- 
sary for a high standard of productivity; (2) that the institu- 
tions necessary for a high level of productivity must inevitably 
produce also a high degree of inequality in distribution. 1 

8. The chief ground on which the first of these proposi- 
tions is likely to be argued seriously is that, at the present level 
of production, a considerable degree of inequality is necessary 
in order to obtain an adequate supply of fresh capital. For the 
moment we will not question what constitutes an adequate or 
inadequate supply of capital, but will merely consider whether 
a great degree of equality necessarily involves a smaller supply. 

In so far as the community depends for fresh capital on the 
savings of private individuals, it is certainly true that it is more 
likely to get a plentiful supply when incomes are very unevenly 
distributed. For the more unequal the distribution of incomes, 
the greater is likely to be the surplus over private expenditure. 
(The proposition is really a corollary of the theorem that the 
marginal utility of income diminishes as the income increases.) 

It is, of course, conceivable that greater equality of distribu- 
tion might be accompanied by an increase in certain motives 
for saving. The actual net effect on the incentive to save will 
depend almost entirely on the nature of the measures of redis- 
tribution employed. But, in any case, it is very unlikely that 
any additional incentive would be strong enough to counter- 
balance the effect of the shrinkage in the surplus private in- 
come of the richer classes, from which at present comes the 
bulk of private savings. A really drastic reduction of in- 
equality at the present level of production is almost certain to 
lead to a reduction in the additions to capital supplied by 

private individuals. 


1 In order to illustrate the fact that there is a logical distinction 
between the two propositions, take, for example, the theory that 
men of genius spring from large families. In order to justify that 
theory, we might attempt to prove either or both of the proposi- 
tions (1) that a large family is a necessary part of the environment 
for genius; (2) that the hereditary and other qualities in the 
parents which produce children of genius are necessarily allied to 
those which produce large families. 



9. But it is not essential that the community should rely 
solely or even mainly on the savings of private individuals for 
additions to its capital. There are alternative sources of supply 
which are no longer merely of potential importance. 

According to an estimate of the Board of Inland Revenue, 
the undistributed profits of companies and private concerns 
amounted in recent years to some 200 millions a year (after 
payment of Income Tax). They formed no less than 40 per 
cent, of the estimated total savings of the nation in 1924, and a 
still higher percentage of the savings devoted to British in- 
dustry. Moreover, apart from their aggregate cash value, such 
corporate reserves are probably more productive of economic 
benefit to industry than the savings of private individuals. For 
in the case of private saving " there is no certainty that it will 
flow in the direction most desirable from an economic and in- 
dustrial point of view; it may be wasted on unsound specula- 
tion, or, on the other hand, it may concentrate too much on 
gilt-edged stocks or on foreign and colonial securities. In- 
dustry may not get its proper share, or may have to direct a 
great deal of its energy in order to do so. On the other hand, 
when a company saves by retaining part of its profit, the opera- 
tion is smooth and simple. In the case of a progressive busi- 
ness, the flow of capital is just in the place where it is required; 
it is at the growing-point of industry, enabling new needs and 
opportunities to be met without delay as and when they arise." 
Thus company reserves are " a form of saving, which is of 
special value to the community." (Colwyn Committee Re- 
port, para. 400, p. 149.) 

Whatever the causes which may have brought this source 
of fresh capital to its present dimensions, its existence is not in- 
evitably bound up with an unequal distribution of private in- 
comes and property. The magnitude of such reserves depends 
on the magnitude of the profits made for organised business 
as a whole and on the policy of its directors. It is not necessary 
in order to achieve greater equality though it might be desir- 
able on other grounds either to reduce the profits from which 
the reserves are made or to discourage the directors from their 



present policy. Under our present system of progressive taxa- 
tion, corporate savings receive favoured treatment, in so far as 
they are not subject to super-tax. 1 More drastic taxation for 
equalitarian purposes might continue to differentiate in favour 
of genuine company reserves. Or the State might go further in 
its encouragement to industry to finance itself. Provision for 
fresh capital might be made a statutory business cost, addi- 
tional to the allowance for depreciation which is now only in- 
tended to cover the replacement of worn-out and obsolete 
equipment. In such a case it would be better no doubt to make 
the allowance a percentage of net profits rather than of the 
value of existing equipment, in order to avoid encouraging 
investment in declining industries. Alternatively, it might be 
made compulsory for all businesses earning profits to set aside 
a minimum proportion for capital reserves. It is, at any rate, 
not impossible to devise safeguards against any diminution in 
this form of saving. 

10. The second alternative to private saving, as a source 
of fresh capital, is saving by governments out of public re- 
venue. In spite of the notoriety which most governments 
have achieved as borrowers and spenders, rather than savers, 
the idea that the State should accept part of the responsibility 
for augmenting the stock of capital is not a novelty, even in 
this country. Our central and local governments already ac- 
cept a share of that responsibility, in so far as they build roads, 
bridges, tramways, power stations, and other capital works, out 
of the proceeds of rates and taxes or out of the profits of their 

1 Under the Finance Act, 1927 ( 31), however, companies 
putting to reserve an unusually large proportion of profits are 
liable to have these " savings " treated as private income for super- 
tax purposes. This clause, although no doubt aimed at "one- 
man" companies formed without any real trading object, is not 
favourable to corporate saving. Theoretically, there is a good 
deal to be said for the proposal to give a rebate for Income Tax 
on the undistributed profits of companies. But the chief practical 
argument against it is that it would be difficult or impossible to 
put it into effect in such a way that it did not still further en- 
courage the formation of the tax-evading " one-man " company. 



own enterprises, rather than by loans subscribed by private in- 
dividuals. Moreover, sums devoted to repaying the National 
Debt are an indirect form of State saving, in so far as the sums 
repaid are generally reinvested by the individuals who receive 
them. In some other countries, tha State accepts a much 
larger share of the responsibility for the maintenance and in- 
crease of its citizens' material equipment. In the City State of 
Vienna, for example, the proceeds of the house-tax are devoted 
almost exclusively to the building of new houses. 

But the sphere of Government saving could be greatly ex- 
tended, if the extension were desired. The investment of 
public revenue in industrial concerns, whether for the purpose 
of acquiring public control of a particular industry or business, 
or with a view to a future increase in revenue, is not an im- 
possible development. In this country we have already had a 
number of varied preliminary experiments, ranging from the 
nationalisation of roads and postal communications to the ac- 
quisition of shares in the Suez Canal and in the Anglo-Persian 
Oil Company though not all these State investments have 
been acquired exclusively out of State Revenue. 

In actual practice, if there is an increase in Government 
saving in this country, it is likely to come about in two ways. 
There is, first, the method of Debt repayment, which we have 
already referred to. Apart from this, any extension of the 
scope of State saving is most likely to take place, not from the 
desire to relieve the individual of his responsibility to provide 
for the future, but as the result of an extension of central and 
local government enterprises. For, although theoretically it is 
possible for the State to be a shareholder in industry without 
being actually director, it would in practice be difficult for a 
modern democratic Government actively to finance an enter- 
prise without accepting willingly or unwillingly responsibility 
for its control. 1 That does not of course mean that finance by 
government involves active management by government 

1 Loans guaranteed under the Trade Facilities Act are not an 
exception to the rule, because the State does not usually have to 
find the money. 



agents; there are always various alternative and intermediate 
stages of public control. 1 But it does imply that the desira- 
bility of drawing on the public revenue for a supply of fresh 
capital for industry depends largely on the nature of the in- 
dustries in question, andthe measures of control involved. 

Leaving on one side as irrelevant here the vexed question 
of Government control of industry, there is one potential ad- 
vantage of State over private saving, as a source of fresh 
capital. A government with an organised intelligence service 
should be able to forecast much more accurately than the in- 
dividual the probable economic utility of enterprises which it 
is called upon to finance; and it is in a position to take a 
broader view of economic utility than the private investor. 2 
Whether in fact it does so or not will depend largely on the 
constitution and personnel of the body charged with the ad- 
ministration of the funds for investment. Unless the latter is 
removed in some degree from direct control either "by politi- 
cians on the one hand, or by Treasury officials on the other, its 
policy is likely either to be unduly influenced by the pressure of 
interested parties, or uHduly restricted by the desire for safety. 8 
The same administrative problem occurs in the case of 
nationalised industries, but one cannot say that it is insoluble. 

It is evident that, unless there were a big absolute decline in 
production, a more equal distribution of wealth brought about 
by Government action would involve an increase in the funds 
available for organised communal saving. The extent to which 

1 See suggestions in Keynes' End of Laissez-faire and Rathenau's 
In Days to Come. 

2 I am not here considering public expenditure on education, etc. 
as State investments, except in so far as it adds directly to the 
stock of material goods. The criticism of the private investor 
refers rather to the employment of touch of his savings in ways 
that are socially unprofitable. 

* It may be added that there are already, in our own constitution 
certain administrative bodies entirely or mainly supported b> 
public funds, which finance trade and industry directly or in- 
directly, but which are not under the immediate control of the 
Treasury or a Ministry, e.g. Development Commission, Forestrj 
Commission, Empire Marketing Board. 



the increase in the State's ability to save would be offset by a 
decline in the savings of its individual citizens depends of 
course largely on the nature of the equalitarian measures em- 
ployed. With that factor we are not for the moment concerned. 
But it may be remarked that, in our own country, the increase 
in progressive taxation, during and after the War, has un- 
doubtedly been met largely, though not entirely, by reducing 
expenditure on current wants. One may cite as evidence the 
fact that, while national taxation in 1924, measured on the basis 
Df 1924 values, was over 400 millions more than in 1914, the 
aggregate savings of individuals and corporations, measured 
on the same basis, are estimated to have declined by not more 
than 150 to 200 millions; and the decline in savings was at 
least partly due to trade depression. 1 

11. An examination of the relationship of inequality in 
distribution to each of the three sources of capital in the 
modern state has led to the following conclusions. With a 
much more equal distribution of wealth (irrespective of the 
method by which it is obtained) it is fairly certain that there 
will be a reduction in the additions to the capital stock coming 
from private savings unless and until production is greatly in- 
creased by the operation of other factors. Thus a greater re- 
sponsibility for maintaining and augmenting the equipment of 
industry would have to be shouldered by organised business 
and by Government. On the whole, it is probable that, even 
under the most favourable circumstances, the material capital 
of the country would increase at a somewhat slower rate than 
under a more unequal scheme of distribution. But the actual 
rate of increase is, within limits, a matter of deliberate choice, 
for, as we have shown, it is not beyond the capacity of the 
modern state to control both the extent and direction of fresh 
savings, and, if need be, to exact from its citizens a sacrifice of 
current expenditure greater than that which they would freely 
make under the operation of the usual private motives for 

1 The pre-war estimate of savings related to a period of boom. 
(See remarks in Census of Production 1907 Report.) 



12. There is, in any case, no reason to suppose that pro- 
duction per head will actually decline, unless the total savings 
are maintained at their present or their pre-war level even if 
we make the impossible assumption so often unconsciously 
made by business men and journalists that the quantity of 
capital is the only variable factor to be considered. The statis- 
tics available about the economic position in our own country 
do not warrant such a conclusion. In the opinion of the Col- 
wyn Committee, a net increase in the capital invested in British 
industry of 50 millions a year dropping to 8 millions a year 
in ten years 9 time would be sufficient to maintain home produc- 
tion per head, at the present rate of increase in population. 1 
The total yearly savings invested in home production were esti- 
mated at round about 350 millions in 1924. 2 No doubt a con- 
siderable proportion of this 350 millions disappears in Capital 
losses and does not form a net addition to the value of the 
Capital stock. But, unless the depreciation allowances of or- 
ganised business, counted as a business expense, are entirely 
inadequate to cover what they are intended to cover, the 200 
millions of corporate savings out of undivided profits (over and 
above the depreciation allowances) should alone be more than 
sufficient for a growth of capital for home uses faster than the 
growth of population.* 

I have no desire to strain these figures of " national savings," 

1 See Majority Report, p. 244, para. 699. 

2 Bowlcy and Stamp, National Income in 1924, p. 57. 

* Sir J. C. Stamp in his British Incomes and Property, after 
criticising current pre-war estimates of capital losses, not allowed 
for in computing Income Tax profits, as much too high, puts the 
amount of annual trading losses which eat into capital values and 
are not allowed for in the Income Tax statistics at not more than 
16 millions a year (1914) (p. 186), to which he adds certain 
other expenses not fully allowed for, making a grand total of 
27-5 millions (exclusive of expenses which would not occur in 
future). (See p. 203.) In his joint book with Dr. Bowley on the 
National Income in 1924, this total is increased to 50 millions. 
See also para. 52 of Colwyn Committee Report, whch points 
out that the figure of Company Reserves is exclusive of allow- 
ances for wear and tear and obsolescence. 



which are admittedly rather vague in definition and open to a 
considerable margin of error. 1 But if they mean anything, they 
certainly do not indicate that the capital available per head of 
the population is likely actually to decline, if transfers of in- 
come within the community make further inroads into the 
private savings of the wealthy. It is interesting to note the 
opinion of the Colwyn Committee, that the large transfers, 
which already take place in our community, by the use of part 
of the proceeds of progressive taxation for public expenditure 
on the " social services," had not yet caused the supply of fresh 
capital to be " inadequate to meet current trade demands." a 
But, if it is absurd to suppose that savings must be kept at 
their present total in order to maintain the existing level of pro- 
ductivity, it is also false logic to argue that, because inequality 
of distribution is more favourable to the increase of capital, 
therefore under greater equality production is likely to be less 

1 Mr. Coates (late Director of Statistics Inland Revenue) in 
making his estimate of National Savings (500 millions) put the 
margin of error at 10 per cent, either way only. See his evidence 
to Colwyn Committee. 

* Para. 60 of the Majority Report of the Colwyn Committee- 
states : " Generally we conclude that the falling off in the National 
Savings, equal to 150 or 200 millions at present-day prices, 
gives ground for anxiety but not for pessimism. It would be un- 
reasonable to expect that in a period of severe trade depression 
. . . there should be an abundant flow of savings. It is not clear 
. . . that the diminished flow has been inadequate to meet cur- 
rent trade demands. When these demands increase, we do not 
doubt that savings will answer to the stimulus; but the need for 
capital may be very great, and it would be unwise to assume that 
there will be no shortage." 

Para. 133 of Minority Report (p. 387) quotes the evidence of 
Mr. Coates (formerly of Inland Revenue) that " there seems little 
doubt that the existing cajHjal equipment of industry is sufficient 
to maintain a marked expansion of activity without additional 
capital requirements except in the form of working capital " and 
that he was " not disposed to think that the existing rate of in- 
come taxation has a harmful effect upon the supply of permanent 
capital." In the opinion of the Minority, " the principal causes 
of a decline in new savings must be sought in factors other than 



than it would otherwise have been. For the argument entirely 
neglects the possible effects of the scheme of distribution on the 
other variable factors that influence productivity. 

13. Chief among these other factors is the efficiency of 
labour. Is then a high degree of inequality of distribution 
necessary for a high degree of efficiency? The efficiency of 
labour as a whole depends on three things the ability of the 
individual worker, his willingness to work and to co-operate in 
a given system of organisation, and the efficiency of the system 
of organisation itself in evoking willing and able work. Since 
we are for the present concerned with the effects of unequal 
distribution and of greater equality in themselves and apart 
from their causes, it is not necessary to consider the effects on 
efficiency of the whole system called Capitalism, but merely the 
results of those features which are the necessary products of in- 
equality. Thus the efficiency or inefficiency of labour under 
different methods of competition, combination, or co-operation 
is a subject that is here largely outside our scope. So far as 
methods of industrial organisation are concerned, we need only 
consider here the changes that would necessarily follow from 
a more equal distribution of wealth, independently of the 
measures by which it might be accompanied. For example, 
under our company and commercial law as it stands, a more 
equal dispersion of property does not in itself involve inevitably 
more or less competition or combination or state enterprise. 
There is only one important change- in methods of industrial 
organisation which would seem necessarily to follow from the 
fact of greater equality in distribution. The present concen- 
tration of property in a relatively few hands makes possible a 
degree of autocracy in industry which could hardly survive 
were property more deconcentratedf and confers on a small 
class of large proprietors a very great differential advantage in 
bargaining with those who require to use their property. That 
differential advantage, at present to some extent counterbal- 
anced by labour combinations in large-scale industry, is, in the 
nature of things, bound to dwindle as inequality of property is 
reduced. For, just as concentration of economic power follows 



concentration of property, so dispersion of power follows the 
dispersion of property. 

It is, of course, quite conceivable that a more equal distri- 
bution of wealth may be achieved by transferring to the State 
the bulk of the property required by industry; and, in such a 
case, there would not necessarily be any deconcentration of 
economic power, and that power might be wielded in an auto- 
cratic fashion. But, in a state accustomed to political demo- 
cracy, it is at least probable that a more equal distribution of 
the individual property that did not pass to the State would in- 
volve a greater degree of democracy in industry. More demo- 
cratic methods of industrial organisation may bring an interim 
period during which efficiency may suffer, because those who 
have never had industrial responsibility before are having to 
learn some of its lessons. But in the long run it is bound to 
improve the morale not to mention the happiness of the 
great majority of individual workers. 

There is no employer and no employee who does not know, 
when he takes the trouble to think about it, that the willingness 
to work of the individual worker is the most important factor 
in the efficiency of labour. Indeed the efficiency of a system 
of industrial organisation must be judged largely by whether or 
not it evokes a willing spirit of co-operation. The point has 
been put authoritatively by Sir Josiah Stamp when he says: 
" Ethical impulses for abundant and unstinted service result in 
increased output and produce automatically the funds for a 
higher reward. . . . The standard of life to be attained with- 
out elaborate contest, as a share of universal hard work and 
efficiency under stable conditions, far exceeds any standard 
that can be got out of the production that results in a world of 
suspicion and artificial restriction." * Yet it is just these ethical 
impulses and this willingness which a very unequal distribution 
of the burdens and of the product of industry tends to destroy. 
Our great inequalities of income and effort certainly help to 
cultivate so-called "inferiority complexes" and the vices of 
envy and greed, but what is much more important as a 

1 The Christian Ethic as an Economic Factor, pp. 38 and 106. 



hindrance to efficiency they also arouse a widespread feeling, 
not only or even chiefly among the poverty-stricken, that the 
present system of distribution is unjust and immoral. And 
there is no need of the lesson of the last few years to prove 
that a sense of social injustice can play havoc with production. 
"Justice," says Edwin Cannan, "is cried for by children, 
pagans, and barbarians. What we have to do is not what 
people call just, but what we find to be best." 1 But the fact 
remains that ideas of social justice and public morality do 
enter into what people " find to be best," and that the ethical 
aspects of an economic system cannot be disregarded as irra- 
tional or even as a non-economic consideration. It is easy to 
demonstrate, on the one hand, that current ideas of what is 
right and just are not very subtle or very clear guides to the 
proper conduct of society in the economic sphere, and that, in 
seeking the practical application of an ethical ideal, we should 
be compelled, in the last if not in the first resort, to analyse 
questions of expediency. But it is equally true that, in order 
to do the expedient thing, we must appear to be just, and (to 
parody Bentham's saying about love and happiness) the best 
way to appear to be just is actually to be just. 

Current ideas of justice do not, it is true, indicate clearly 
whether the distribution of the product of industry should be 
according to the needs of the individual, or according to the 
amount of effort which he puts forth, or according to the value 
of its effects, under the circumstances of the time. 3 But it is at 

1 From a letter to Dr. Scott Nearing, republished in an An 
Economist's Protest. (P. S. King, 1927.) 

3 In the same letter, Cannan remarks: "Income according to 
service is almost obviously a hopelessly rotten ideal, since it 
means nothing for those who, temporarily or permanently, cannot 
serve at all, and these, in many cases,' are the very people whose 
needs are greatest." " I have never swerved from the advocacy of 
the nearest possible approximation to distribution according to 
need, and have always looked on distribution according to service 
as a chimera, and an undesirable chimera." 

Sidgwick, on the other hand (Principles, Book III, Ch. VI, 
p. 506), considers that "the demand for greater equity in distri- 
bution can only be interpreted as a demand that differences in 



least certain that they are not in harmony with inequalities of 
wealth which correspond neither to differences in need, nor to 
differences in effort, nor to differences in the amount and value 
of the personal economic services rendered to society by the 
individuals concerned. 1 

Some economists, indeed, 2 have been at pains to show that, 
in the modern community, incomes are in fact distributed ac- 
cording to the value of its members' services. But, in order to 
do so, they have to treat all incomes from property as repre- 
senting the value of the economic services of its owners. " Sug- 
gestions of this kind," says Dr. Dalton, " though capable of 
being so 'interpreted' as to be logically flawless, strain 
language to the breaking-point. If made by rich men, poor 
men might be pardoned for thinking them disingenuous. When 
made by professional economists, they tend to discredit econo- 
mic science in the eyes of the simple." It is " hard to believe 
that merely to permit one's land to be used, or merely to refrain 
from consuming one's capital is to render any positive service, 
or that income from inherited property can be seriously re- 
remuneration, due to causes other than the voluntary exertions 
of the labourers remunerated, should be reduced as far as pos- 
sible." He points out the impossibility of applying the principle 
in practice, but remarks (p. 517): "Though the principle of re- 
warding desert remains, in my view, paramount, it is rather as a 
stimulus indispensable to the most economic production, which 
thus presents itself as a condition by which, all efforts to make 
distribution more economic ought to be confined." 

G. Lowes Dickinson (Justice and Liberty) seems to hold Dis- 
tribution according to Effort to be the equitable ideal. 

Hugh Dalton, in his book Inequality of Incomes, has a chapter 
on "Justice and Inequality of Incomes," in which the various 
conflicting ideas of economic justice are shrewdly criticised. The 
author shows that, in the last analysis, there is no real dishar- 
mony between the ideals of equity and economy. 

1 Dean W. R. Inge (England, p. 192), having quoted statistics 
to show that redistribution could do little good, remarks : " It is 
easy to prove that the distribution of incomes in this country is 
flagrantly disproportionate to the public services of the reci- 

8 E.g. J. B. Clark. 



garded as payment for service rendered by the present owner. 
It is also very hard to believe that, if competing sellers of any 
commodity cease to compete and enter into combination, as a 
result of which their output is deliberately restricted, the price 
of the commodity raised and their incomes largely increased by 
monopoly profits, these increased incomes represent increased 
services rendered to society." * 

Moreover, in biased hands, the argument usually neglects to 
mention that apart from such "unearned" elements in in- 
come unequal abilities and unequal contributions to the 
economic pool are themselves partly due to previous inequali- 
ties of wealth. Hence, in justifying the method of giving un- 
equal payment for services of different value, it appears to 
justify any inequalities which may arise when that method is 
applied, regardless of the fact that in our society unequal dis- 
tribution has already loaded the dice by creating unequal op- 
portunities for physical and mental development. " I starved 
the horse; he could not work; therefore he was not worthy of 
my food." Such arguments do not convince the simple, even 
when the logical flaw is not apparent. And, in fact, the more 
enlightened supporters of our present system of distribution 
have given up any attempt to find an ethical basis for it. But, 
in trying to remove the controversy from the realm of ethics 
to the realm of expediency, they have sometimes forgotten that 
there is no boundary between the two domains, and that ex- 
pediency without some common philosophic aim is as much a 
will-o'-the-wisp as justice considered irrespective of expediency. 

It is, at any rate, futile, in the practical application of a 
science which aims at promoting human happiness, to disre- 
gard people's feelings about what is " just." Attempts to dis- 
pel the smoke of economic discontent, by pointing out the 
obvious economic advantages of social contentment, have not 
hitherto proved successful. In so far as greater equality of 
incomes and effort is likely to quench the fire behind it, it is a 
more effective remedy for the symptoms of grudging work and 
stinted service. In so far as the present inequality fans the 

1 Inequality of Incomes, pp. 23, 24. 


flame, it is not conducive to a high degree of efficiency. 

. 14. We have now to consider the remaining factor in the 
efficiency of labour namely the physical and intellectual abili- 
ties of the people. It has often been argued that, since at no 
time in history has productivity been sufficient to give much 
comfort or leisure to the masses, unequal distribution was 
necessary in order that science and the arts might reach their 
present high level of achievement, by the intensive culture of a 
favoured minority. I am not concerned here with the validity 
of the historical argument, nor with the ethics of this mode 
of social conduct, but merely with its relevance to present-day 
civilised communities. And, as an argument for the mainten- 
ance of present inequalities, it is obviously futile. For every- 
one knows that the larger part of the surplus income of the 
richer classes is not spent in the pursuit of knowledge or on the 
maintenance of indigent scientists and artists, but is invested in 
industry or spent on comforts and luxuries. 

And it is demonstrable, on the other hand, that a transfer of 
part of this surplus purchasing-power to the public funds avail- 
able for improving the health and education of the people 
could result in raising the general standard of physique and in- 
telligence far beyond its present level. For, it is well known 
particularly to those who have to deal with the ailments and 
defects of infants and school children that physical and 
mental qualities depend largely on circumstances of environ- 
ment, alterable by the concerted action of the community. 

The old eugenist's argument that environment does not 
matter in the long run, because acquired characteristics cannot 
be inherited, was never logical, except when it proceeded on 
the ridiculous assumption that the possession of material 
wealth was an adequate test of fitness to survive. For, of what 
use is " innate ability " in an environment which prevents it 
from becoming anything more than "innate," or when the 
body which contains it is killed off by underfeeding and disease 
before it can propagate its kind? Moreover, since the eugen- 
ists would presumably not waste their breath, unless they be- 
lieved that the propagation of permanent defects in quality 



could be checked or stopped, we may agree that environment 
must have its reactions upon heredity also. For the wider 
application of eugenic principles by individuals will only come 
with an improvement in general education and hygiene. In- 
deed, until we get a better environment for the masses, we are 
unlikely to get better breeding. 1 

One must conclude, therefore, that in so far as the surplus 
purchasing-power of the rich is not employed in improving the 
health and intelligence of the community at large, the present 
inequality in distribution is not favourable to a high general 
level of ability. Hence, on this last count also, it is not con- 
ducive to the highest efficiency of labour. 

15. Other factors in productivity which ought, perhaps, 
to be considered are the size of the population, and the pro- 
portion of it engaged in production. For it has sometimes 

1 For a more elaborate refutation, from the economic point of 
view, of the eugenic arguments against bothering about environ- 
ment, see Pigou, Economics of Welfare, Chap. IX, " The Quality 
of the People," pp. 92-108. He quotes Professor Punnett (" Men- 
delism") as saying that hygiene, education, and so on, are but 
" fleeting palliatives at best, which, in postponing, but augment the 
difficulties they profess to solve. . . . Permanent progress is a 
question of breeding rather than of pedagogics; a matter of 
gametes, not of training." 

The Whethams in their book, The Family and the Nation, are 
much more reasonable than some of the eugenists whom Pigou 
quotes. They do not go beyond the following balanced state- 
ments: "Modern biological and statistical investigations have 
emphasised the importance of heredity in determining individual 
character. . . . The influence of environment home surround- 
ings, education, the accidents of life do but modify the innate 
qualities handed down to man from his ancestors " (p. 207). " At 
present, the study of environment holds the field. The results of 
improvement are there more visible and more immediate. They 
are of incalculable value, and to them the progress of the past 
century is largely due. But the changes in the innate qualities of 
the race, though slower in action, are of even more profound 
importance than alterations of the external conditions of human 
existence" (p. 5). 

See also J. B. S. Haldane's brilliant essay on Eugenics and 
Social Reform in Possible Worlds. 



been suggested that equalitarian schemes of distribution would 
be accompanied by a more rapid growth of population than 
would otherwise occur. It would, however, be difficult nowa- 
days to maintain the thesis that a rise in the incomes of the 
poorer section of the community would be soon absorbed by 
an increase in their families, or that there would be any ten- 
dency for production per head to diminish on that account. For 
recent statistical research has shown that, on the whole, it is 
the classes with the lowest incomes and standard of life that 
have the largest families. The average size of the families of 
the professional and middle classes is smaller than that of the 
1 artisan and labouring class, and that of the skilled artisan is 
smaller than that of the unskilled labourer. 1 In so far, there- 
fore, as greater equality of incomes results in raising the 
standard of life of the poorer classes, it is likely to retard rather 
than accelerate the growth of population. 2 It is, of course, 
possible that a measure of redistribution involving very gener- 
ous family allowances might have the opposite effect. But 
transferences from rich to poor which enable the latter to 
obtain better education and housing are likely to lead to a 
greater providence in sexual matters and a limitation of the size 
of families to that which the parents could properly afford. 3 
16. Since we are concerned with productivity per head of 

1 See "Occupational Fertility," volume of 1911 Census (Decen- 
nial Supplement, pub. 1920); also T. H. Stevenson, in Statistical 
Journal, May, 1923; also Occupational Mortality and Fertility 
Report of 1921 Census, Decennial Supplement (pub. 1927). 

3 Cf. J. B. S. Haldane's Possible Worlds, essay on "Eugenics 
and Social Reform," in which he argues that the best way to re- 
duce the birth-rate of any class is to give it more income and 
more leisure. 

8 Professor Pigou (Economics of Welfare, p. 90) concludes, 
from similar evidence, that "an improvement in the fortunes of 
the poor is not likely, in an isolated community, to cancel itself 
by causing a large expansion of population "; but points out that, 
in a non-isolated community, an increase of population might 
result through immigration. But, "in any event, the beneficial 
influence of the changed conditions is not destroyed, but is merely 
spread over a wider area." 



the whole consuming population rather than per head of pro- 
ducers, the proportion which the latter bear to the total popu- 
lation is a factor to be taken into account, and we have to con- 
sider in what way, if at all, that proportion is likely to be 
affected by changes in the distribution of wealth. 

If greater equality were obtained by the reduction of incomes 
from the passive ownership of property, a certain number of 
people now living chiefly or entirely on " private means " would 
be led to seek work. The number of adult persons, who are fit 
to work, and who are not occupied in any trade, industry, or 
profession, or in the work of looking after children and the 
home, is, in fact, comparatively insignificant. 1 The number of 
men, who have some profession or trade, but do not pursue it 
as a regular full-time occupation and derive the bulk of their 
income from private means, is certainly much larger. 

As against this addition to the ranks of those engaged in 
economic activities, one should perhaps set the possible reduc- 
tion of a larger number of very young and aged persons, whose 
withdrawal from industry might result from measures of redis- 
tribution, which involved raising the school age or increasing 
old age pensions. 2 

The effect of changes in distribution on the section of the 
working population which is unemployed is a much larger 
problem. But, for the present, it will be remembered that we 
are concerned only with the influence of greater or less equality 
in itself; and, apart from the by-products of the factors which 

1 Professor Bowley puts the number of men, and single and 
widowed women, who are unoccupied and have investment in- 
come in excess of 135 a year, at about 200,000 for the United 
Kingdom in 1924. But many of these would be aged and in- 
firm. In the 1911 Census of England and Wales, 52,000 males 
were classified as "unoccupied" and having "private means," 
but to some 147,000 unoccupied adult males no special classifi- 
cation was attached. (Bowley and Stamp, The National Income, 

2 270,000 persons under sixteen years of age and 798,000 over 
sixty-four years were. returned as "gainfully occupied" in Great 
Britain in 1921. 



shape distribution, one can see no necessary reason why the 
numbers of the unemployed should be increased by a more 
equal distribution of incomes. If the surplus transferred from 
the richer classes were employed to raise unemployment benefit 
to a much higher level, without adequate safeguards, no doubt 
increased unemployment might result. But there is no neces- 
sity for the transfer to take that form. Again, a sudden and 
revolutionary change in the organisation of industry and the 
distribution of the product might well increase unemployment 
certainly for a time. 

But there are reasons why a gradual change towards greater 
equality, which gave time and opportunity for the readjust- 
ment of industry to the new conditions of demand, might have 
the opposite effect. For, in the first place, the trades engaged 
in the production of the necessaries and general conveniences 
of life would increase at the expense of the luxury trades, and 
employment in the former is likely, other things being equal, 
to be more stable than in the latter. In the second place, since 
one result of the greater equality of incomes is likely to be 
some decline in the proportion of the total income devoted to 
capital purposes, there would be to some extent a shifting from 
industries supplying capital equipment (for which demand is 
relatively unstable) to those supplying goods for consumption 
(for which demand is relatively stable). Lastly, in so far as the 
transfer from rich to poor takes the form of better general edu- 
cation, the mobility of labour between different trades is likely 
to be greater, and unemployment due to lack of mobility 
correspondingly diminished. 

These are merely general theoretical considerations. To esti- 
mate the actual effect of a more even distribution of wealth on 
the loss of productivity due to unemployment, we should, of 
course, need to consider the exact means by which that change 
in distribution was to be brought about and the nature of the 
measures likely to accompany it. Here, it is merely necessary 
to point out that there are no reasons for supposing that such 
a change would inevitably involve either a larger population or 
more unemployment than otherwise. 



denial, but which need to be swept aside before any progress 
can be made in economic and political thought. To show, for 
example, the obvious advantages of enabling men to enjoy 
securely the " fruits of their labour " is not to justify all exist- 
ing forms of property or its present distribution any more 
than the manifold examples of property gained without labour 
justify the counter-generalisation that all property is theft. Yet 
for a long time these undiscriminating methods of attack and 
defence have held the field and diverted attention from the 
real issues. Fortunately for the progress of their science, most 
economists now reject such generalisations and the elaborate 
sophisms required to justify them, as illogical and beside the 

In the face of modern economic analysis, no one is likely to 
try to maintain the thesis that all the factors responsible for 
existing inequalities of wealth are either inevitable in the nature 
of things or desirable in the interests of productivity. It is only 
possible to argue, as a matter of opinion in the absence of con- 
clusive data, that such factors as are immediately alterable 
without damage to productivity, do not in fact contribute 
greatly to inequality; and that, consequently, no substantial re- 
duction of inequality is likely to be achieved in the near future 
without checking the operation of other factors, which do at 
present act as important stimuli to productive effort. In order 
to decide in a scientific manner the probable truth or falsehood 
of this gloomy assumption, we should need to determine, by 
analysis of the available facts, first which of our institutions 
that contribute to unequal distribution may be modified or 
eliminated without checking productivity, and second the rela- 
tive importance of those factors as causes of unequal distri- 

This book is not an attempt to carry out such an analysis, 
but rather to contribute to it by selecting one particular factor 
for special study and criticism. In the following chapters, we 
shall try to answer the questions : In what way does our system 
of inheritance contribute to unequal distribution? What is its 
relative importance as compared with other causes of in- 



equality? In what respects is the institution in its present form 
desirable in the interests of production? How can it be modi- 
fied without damaging those interests? 




(A) The following estimate (based on the Income and Super- 
Tax statistics and an independent valuation of wages and " inter- 
mediate incomes") was given by A. L. Bowley for the United 
Kingdom in 1910 (see "Change in the Distribution of the 
National Income," 1880-1913). 


Income Range. 

Number of 



No. % 

Amt. % 

Under 160 
45,000 + 





Aggregate of Indi- 
vidual Incomes . 
Add Undistributed 
Income of Com- 
panies, etc. . 
Evasion . 


1, 872ms. 

50 ms. 
40 ms. 


1, 960ms. 

N.B. The amounts of income are reckoned before deduction 
of Income and Super-Tax. Income evading tax and Corporate 
savings cannot be distributed in the table of private incomes. 



(B) Post-war Distribution. (Table II, on p. 65.) Dr. Bowley 
and Sir Josiah Stamp's study of The National Income in 1924 
"unfortunately does not help as regards distribution between indi- 
viduals. The only source of information is the table of distribu- 
tion of taxable incomes in 1919-20, given by the Board of Inland 
Revenue in its Sixty-fourth Report (pp. 112-13). This Table only 
takes us down to the 130 limit. Below that limit there were 
some 13 million incomes. Sir J. C. Stamp (Wealth and Taxable 
Capacity) suggested nearly 100 p.a. as the average income of 
this class. In the absence of anything more authoritative, I adopt 
that estimate in the following table. 

This table does not, however, represent the distribution of 
income in any one year, and it is not comparable with 
Dr. Bowley's table of pre-war distribution. Most business profits 
were assessed on the basis of the previous three years (viz. 1916- 
17, 1917-18, 1918-19), when prices and profits were rising rapidly, 
though the latter were kept in check by the Excess Profits Duty. 
But wages and salaries were assessed on the basis of the year 
in question or the preceding year. Hence there is a relative 
understatement of incomes from property, and therefore an under- 
statement of inequality in distribution. A second factor which 
makes this table not comparable with the pre-war one is that the 
Excess Profits Duty was deducted as a business expense before 
income was assessed to tax. This duty was not in existence be- 
fore the War, and there is no real reason why it and not Income 
Tax should be deducted before arriving at the figures of " actual " 
income. If it had not been deducted and assessable profits had 
increased by the full amount of the Duty, there would have been 
a large chunk of extra income going to those in the higher 
reaches of the scale. (The proceeds of Excess Profits Duty in 
1919 were about 390 millions.) Lastly, corporate income (i.e. ( 
undivided profits of companies) though not included in either' 
table, formed a larger proportion of the total after the War.! 
Income evading taxation was estimated to be 7515 millions inf 
1924, but as against this must be set some 50 millions to allov 
for over assessment, where losses are not provided for. (Bowli 
and Stamp, The National Income in 1924, p. 17.) 


(Table III, on p. 66) 

In the Income-tax assessment sense: , 

" Earned " Income is income " immediately derived by an indi! 

vidual from carrying on or exercise by him of his trade, profes 

sion, vocation or employment** (see I.R., 64th Rept., p. 80). I| 











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thus includes profits of private firms and professions, derived 
partly from capital, as well as wages and salaries. 

" Unearned " or " Investment " Income means all Income other 
than "Earned" Income, as above defined, i.e. income from 
property which yields a return separable from that of labour. 

The following table is based on the Inland Revenue figures for 
1919-20 (see 64th Rept., pp. 104, 112, 113), and Table II. 

An estimate has to be made of " Unearned " income in the 
class below the Tax limit. Bowley and Stamp put this at 77 
millions in 1924 under the limit of 150 p.a. (see op. cit., p. 46). 
My figure for unearned income under the 130 p.a. limit in 1919 
(50 millions) is a very rough estimate, based partly on the figure 
for 1924, partly on the Inland Revenue figures of exempt incomes, 
and partly on Prof. Clay's estimate of capital held by those with 
estates of less than 100. As regards the first basis, the aggregate 
taxable income received by persons with incomes between 130 
and 150 in 1919 was probably in the neighbourhood of 400 
millions. The percentage " unearned " in the 130-500 class was 
nearly 7%. 6% or 7% of 400 millions gives say 25 millions as 
the " unearned " income of those in the 130-150 class; and if 77 
millions was the unearned income of all under 150 in 1919 as in 
1924, the unearned income of those below 130 would thus be 
about 50 millions. 

As regards the second basis, the Inland Revenue figures of income 
exempted as under the 130 limit give 79 millions. But of this 
26 millions was farmers' " earned " profits, and a certain unknown 
proportion of the 21 millions exempted under Schedule D was in 
respect of manual wages. 0-7 million also was exempted under 
Schedule E. (Salaries). On the other hand, the Income Tax figures 
do not include all interest on War securities not taxed at source 
and received by exempt persons, another unknown quantity. 
{ As regards the third basis, Prof. Clay put the average capital per 
tiead of 131 million persons with estates less than 100, in Eng- 
land, at 67 10s. per head in 1920. This estimate included 170 
millions of furniture, etc., not yielding a monetary income, so that 
the average capital yielding a monetary income becomes 55 per 
Jiead. Assuming this to be also the average capital holding of 13 
Jtnillions below the Income Tax limit in the United Kingdom, and 
fen average yield of 6%, we get a total investment income for this 
|class of about 45 millions. 

.' The exact division into " Earned " and " Unearned " of the total 
Income in the class over 2,500 is also not given in the Income 
frax figures. The Board of Inland Revenue, however, supplied to 
the Colwyn Committee a table showing the number and amount 
jff "earned" incomes received by Super-tax payers in 1913 and 



1922. (Appendix XV, Colwyn Committee Report.) In each case 
" unearned " income formed a little over 70% of the total. (72% 
in 1913, 71% in 1922.) (Note that Directors' fees are included as 
"earned" income.) 

In 1919-20 the proportion of unearned to total income in the 
class 2,000-2,500, as given by the Income Tax figures, is 69%. 
Thus the proportion for the whole class of incomes 2,500 and 
over may safely be put at about 70%, and the total " unearned " 
income in this class is therefore put at 340 millions. The aggre- 
gate of " unearned " incomes becomes 728 millions to which must 
be added 260 millions of undivided profits, making 988 millions 
in all. The profits of taxpayers (over 130) derived partly from 
labour and partly from capital, and included in the total of 
"earned" income, come out at about 315-320 millions. I may 
add that, by an entirely independent method, employed before some 
of the data used above were known, I arrived at an estimate of 
300-330 millions for this " intermediate " income of the " taxable " 

In view of the considerations mentioned in connection with 
Table II the actual difference between the distribution of " earned " 
and investment income is even greater than is indicated in this 
table. Pure earnings also, exclusive of incomes derived partly from 
capital, would be more evenly distributed than " earned income " 
in the Income Tax sense. 

It should be noted, however, that the above table does not show 
the distribution of " earned " income and " unearned " income 
according to the size of individual earnings and individual un- 
earned incomes separately. It shows, for example, that 2-7% of 
the people with total incomes over 500 received 13% of the total 
" earned " income, not that the 2-7% with the largest earnings got 
the latter proportion. A certain proportion, particularly in the 
richer classes (about 25% in the class over 10,000 a year) are not 
getting earned incomes. Nor can one assume that earners with 
the largest total incomes have in every case the largest earnings; 
though one can see that, on the average, taking broad classes, this 
is true, for the average " earned " income in each of the classes 
taken in the table does increase with total income. 

3. THE DISTRIBUTION OF PROPERTY. (Tables IV. (a), (b), and (c), 

pp. 71 and 72) 

The following tables, relating to England and Wales only, are 
based on the Estate Duty figures for property passing at death. 
For the years 1911-12, 1912-13, 1913-14, and 1914-15, the Board 
of Inland Revenue published the numbers and values of estates, 
liable to Estate Duty, according to the age of the decedent as 



well as according to the size of his fortune. On the assumption 
that the dying in each age-group are a fair sample of the living in 
the same age-group, it is possible from these figures to construct 
a table of distribution among the living. The numbers and values 
of decedents' estates in each age-group are multiplied by the 
reciprocal of the death-rate for that age-group. The method was 
first employed by Sir Bernard Mallet and Mr. H. C. Strutt, to 
estimate the total private property owned by the people of the 
country. It has subsequently been applied by Prof. Henry Clay in 
order to determine the distribution of that property (see Mallet 
and Strutt in Stat* Journal 1910 and 1915, and Clay, Distribution of 
Capital, Manch. Stat. Soc.). The reciprocals of the death-rates for 
all males were first applied to the figures. But it was soon realised 
that these were not strictly applicable either to males in the proper- 
tied classes or to the considerable number of female property 
owners, as in both cases the death-rate is considerably lower than 
for males in general. The death-rates of males in various " Social " 
or really occupational classes have now been published by the 
Registrar-General both for 1910-12, and 1921-3. The death- 
rates of males in " Social Class I " comprising the bulk of the 
upper and middle classes have been used by Prof. Clay in con- 
'verting the Estate Duty figures for 1911-13 (Table IVa). 

The Estate Duty figures for 1923-4 and 1924-5, which form the 

jbasis of Table IV (b) and (c), give the distribution of men's and 

^women's estates separately, and it is thus possible to be rather 

iore accurate, by applying the " Social Class I " death-rates to the 

les, and the general female death-rates to the women's estates. 
There are no published figures of women's death-rates in dif- 
ferent social classes. The number and value of living women's 
Restates in Table IV (c) are, therefore, relatively to the figures for 
males, somewhat understated.) I ought to add, however, that, in 
jmaking my estimate for 1924, I was not able to use the "Social 
Class 1" death-rates for 1921-3, as they were not then published. 
3 assumed instead that the death-rates in this class in 1922-4 
Jbore approximately the same relation to the general as in 1910-12; 
[in fact, the new official figures show an even greater difference 
jbetween the classes chiefly at the young and middle-ages, but this 
jis partly because " Social Class I " is now more strictly confined to 
lie " comfortable " classes than in the pre-war classification. If 
lie new official figures for death-rates in this class had been em- 
jployed, the total value of estates held by the living would have 
:ome out perhaps about five per cent, higher than in my table, and 
|he relative distribution might also have been slightly altered. 

The method described above of estimating the amount and dis- 
jjribution of property held by the living has been criticised on the 



ground that estates left by the dying in any age-group are not 
in fact a strictly fair sample of those held by the living at the same 
ages. Gifts between the living, it is argued, are made, on the 
whole, by older men who are failing in health to younger people 
who are not failing; so that the death-rates applicable to the dif- 
ferent age-groups affect the givers proportionately more than the 
receivers of gifts. 1 There is obviously some truth in the criticism, 
though it is probable that nowadays large gifts are frequently 
made by normally healthy parents to their children, soon after 
they have become adult, and in all such cases, death would take 
a "fair" or indifferent proportion of both young and old. In 
so far, however, as the criticism is just, our method of estimating 
distribution among the living would tend slightly to overweight the 
larger estates of older men and to underweight the smaller estates 
of younger men. But relative distribution within each of the 
various age-groups is so very similar* that the error involved on 
this account may be taken as unimportant for practical purposes. 
It is of more importance when the same method is employed to 
estimate the total value of the aggregate property. 

Apart from criticism on theoretical grounds, there are certain 
technical discrepancies in the Estate Duty figures which would 
make an estimate of distribution based on the statistics of a single 
year liable to error. For example, neither before nor after the 
War, did the values of estates entered in the official tables corre- 
spond exactly to those actually passing in the year in question. 
But the possibility of error on this account can be greatly mini- 
mised by basing one's estimate on a number of consecutive years. 
The figures of pre-war distribution in Table IV (a) are not, 
however, exactly comparable with those of post-war distribution 
in Table IV (b). For, in the first place, the pre-war figures do not 
include all settled property, whereas the post-war figures do. In 
the second place, the Estate Duty figures before the War referred 
to the total values of estates received for Duty; whereas aftei 
the War, they refer to the values on which duty was actually pak 
in the year in question. But this difference does not materially 
affect comparability of the post-war and pre-war figures, in th< 
opinion of the authorities." Lastly and more important th 
totals of estates over 100 in the pre-war table are understate 
owing to the fact that the "multipliers" applied to the Deatl 
Duty figures were based on male death-rates only, and wouL 
have been higher if women's estates could have been treate 

1 Stamp, British Incomes, etc., pp. 412-13. 

2 See Chapter VII, pp. 188-9 and Appendix. 
* See 63rd Report of Inland Revenue. 



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Since the Estate Duty figures refer only to estates over 100 net 
value, it has been necessary to take some independent estimate of 
the aggregate value of property owned by those under that limit. 
Prof. Clay's estimates for 1912 and 1920 (respectively) were 470 
millions and 910 millions. There is probably a large margin of 
error in these estimates, but this makes little difference for most 
purposes, since the property held by the class below the Estate 
| Duty limit is certainly only a small proportion of the total, lying 
to-day somewhere between five and ten per cent. 


It is not clear what is the total number of individuals in the 
population to which the numbers of estates in the different classes 
should be related in reckoning the relative distribution of property. 
In his estimates, Prof. Clay chose the total number of " occupied " 
persons over fifteen years of age (plus an estimate for the small 
number living entirely on private means). But this cuts out mar- 
ried women with property of their own; and since their estates 
are reckoned separately in the Estate Duty figures, I have taken, as 
the total for comparison, the number of adult men and women 
.over twenty-five years of age. The number and value of estates 
iheld by persons under that age is relatively very small. 

The difference in the two totals is appreciable; in 1912 the total 
number of " occupied " persons plus those living on private means 
was 16,208,000, while the number of adult men and women over 
twenty-five years was 18,500,000, of whom over 16 millions were 
estimated to have estates below the Estate Duty limit. 

The next Table (IV (c)) shows the distribution of property among 
men and women separately, for 1924 only. 

It will be noticed that the relative inequality of distribution is 
'very much the same for both men and women, though rather 
[greater for men in the wealthiest classes. Thus 8-16% of adult 
[males own 86*3% of their aggregate, and 8-13% of the women 
own 85-7% of their aggregate; 15-7% of males own 91-0%, 
16-9% of women own 91-9%. This similarity in relative distribu- 
tion as between men's and women's estates is remarkable, in view 
of the fact that, while a large part of the men's estates must be 
due to fresh accumulation, the bulk of women's property must 
be inherited. I refer to this point later in another connection 
.see Chapter VII, p. 190). 


The figure by which the total value of estates passing at death 
has to be multiplied in order to obtain the aggregate held by the 



living called the " multiplier "was estimated at 30 in 1912, and 
works out at 34 in 1924. If we had full particulars of both male 
and female death-rates in the upper and middle classes, and applied 
the reciprocals of these to the Estate Duty figures, the " multiplier " 
would probably be found to be 5% to 10% higher. If a multi- 
plier of 37 is applied to the figure of estates passing in Great 
Britain in 1925-6, the aggregate value of private property in the 
hands of the living would come out at 18,000 millions (including 
an estimated 1,000 millions for those under the Estate Duty limit). 
This figure, of course, includes War Loans and excludes communal 
possessions, and is not comparable with estimates of the value of 
the concrete capital possessed communally and individually by the 
inhabitants of Britain. Sir J. C. Stamp's estimate of the aggregate 
of individual property (for the United Kingdom) in 1919 was 
15,000 millions. 

The " multiplier " differs little for men's and women's estates. It 
was 34*4 for men in 1924 and 33 '6 for women. The latter figure 
would have been higher, had the special death-rate for "upper- 
class " women been known. 

Variations in the " multiplier " are caused by variations in the age- 
constitution of various classes of property owners, and in the death- 
rate. If there were no gifts between the living and all property 
changed hands by inheritance at death only, the tfc multiplier " would 
represent the average number of years during which a unit of 
property remains in the hands of the living, or the length of a 
generation of property ownership. But gifts inter vivos artificially 
raise the " multiplier," and when they are extensive, it will be some- 
what in excess of the period between inheritance and death (see 
Strutt, 5. 7., May, 1910, and Mallet and Strutt, 5. J., 1915). But, 
in Britain at any rate, the difference is not, at present, likely to be 
great. Note that the length of a generation, or the period between 
deaths of fathers and of their sons, lengthens when the death-rate 
is decreasing, and vice versa; though it is not necessarily longer 
with a low than with a high death-rate. 

(See also Note to p. 131 of Chap. V below.) 




1. THE word "Inheritance" is commonly used in a 
number of different contexts, and can be applied generally to 
anything acquired from a progenitor or from previous genera- 
tions. As a legal term it has a very restricted meaning. It is 
confined to property succeeded to by legal right as distinct from 
bequests by will, and thus applies, in England, only to property 
passing under settlement or entail, or in cases of intestacy. 1 
But, in general, it is neither necessary nor convenient for us to 
make these technical distinctions ; and in this book, as in 
common language, " inherited property " means any kind of 
property received from anyone after his death, whether under 
his will or by legal right. 

The laws and customs which determine the nature of the 
institution of inheritance vary considerably in different coun- 
tries. In most European countries, for example, when a 
parent dies, the major portion of his property descends by 
legal right to his children; while in England a man is legally 
entitled to leave the whole of his property to whomsoever he 
wishes. The economic effects of such differences in law are 
discussed in a later chapter. At present we are concerned 
with the common and essential characteristic of all systems of 
inheritance in Western civilisation, which is that a man's 
property does not revert on his death to the community at 
large, but passes, whether by law or by custom, to his children, 
relatives, and friends. Whatever form the laws of inheritance 
take, the large majority of men and women leave the bulk of 
their property to their family dependants and relatives. And 
these are the two most obvious functions of a system of in- 

1 But elsewhere to legitim property. (See below, Chapter IV.) 
There used to be a further distinction between a gift by will or 
realty, called a Devise, and a bequest or legacy of personalty. 



heritance in modern communities, that it enables a man to 
continue to support after his death, those whom he loved, or 
who had a claim on his support, and that it enables a fortune 
to be kept within a family from generation to generation. 

2. " Inheritance," says Taussig, " is an indispensable part 
of the institution of property." * But that is not a literal fact. 
For there could be a system of private property, which did 
not involve any right of private persons either to bequeath or 
inherit, and under which, on the death of their proprietors, 
all possessions passed to some organisation acting as trustees 
for the community. There have, also, been primitive societies, 
in which a man's moveable effects were burnt or buried with 
him, when he died. 

On the other hand, of course, a system of inheritance pre- 
supposes the institution of private property in durable forms, 
that is, either in the more durable commodities or in "in- 
tangible " rights to future income, such as are capable of being 
handed down from one generation to another. In the extreme 
case, if private property were restricted to articles, such as 
perishable foodstuffs, which lose all value if not rapidly con- 
sumed, the institution of inheritance would be of no effect. 

3. In order to see the influence of inheritance (as above 
defined) in proper perspective, it is important to realise at the 
outset, first, that it is not the only means of acquiring property 
gratuitously by legal methods, and secondly, that it is not the 
only factor which would tend to make differences in wealth 
hereditary. Both these considerations are indeed obvious, but 
their significance is sometimes overlooked. 

As regards the first even when we rule out windfall in- 
creases in property, resulting from speculation or gambling 
or pure luck, as not strictly "gratuitous" because of the 
element of risk or foresight inherited property is still only 
the chief species of a genus. For Gifts between the living are 
the great alternative to the transmission of property at death. 
Thus, even if the institution of inheritance were entirely abol- 
ished, if gifts were not also restricted, it would still be perfectly 

1 Principles, Chap. 54, Vol. II, p. 251. 


possible for property to pass from the parents to children and 
for private fortunes to be preserved throughout the genera- 
tions. The practical bearings of this observation are discussed 
fully in a later chapter. It is only necessary here to point out 
that any restraint upon inheritance, which is not accompanied 
by a restraint upon gifts during life, is likely to increase the 
importance of the latter as a factor in the distribution of 
property. Since, however, the bulk of gifts inter vivos are 
nowadays made as advance payments, so to speak, to those 
who ultimately inherit, the effects of the two methods of dis- 
position on the inequality of wealth do not differ materially. 
Those who dispose of most of their property by gift during 
life certainly have rather less time in which to accumulate than 
those who retain their fortunes till death; but, on the other 
hand, in the former case, the recipients acquire the property 
at a younger age and have, therefore, a longer period in which 
to increase it. 

4. Closely akin to inheritance and gifts from parents is the 
acquisition of property by marriage. 1 Even when no property 
is actually handed over by either spouse or parents, by way of 
marriage settlement or dowry, it is still obviously a great eco- 
nomic advantage to marry a rich husband or a rich wife, as the 
case may be. In general, therefore, when examining the effects 
of inheritances and gifts, we ought, where possible, to look at 
the holdings of each household or family unit, and not merely 
at that of one of the parents or spouses. This is particularly 
important, now that such a large proportion of the total 
property is in the hands of women. 2 

5. While inheritance and gifts of property from parents 
to children affect chiefly and directly the distribution of 
property, two other factors have a greater effect hi maintaining 
hereditary differences in earning-power. ^fBSrjjnt ' Jl^-RPJjie bio- 

1 The Law does not consider 
gratuitously acquired, since marria; 
consideration " where settlements 

a About thirty per cent, of the 
left by women. l( 5 ^ y* ^ ^ >, r ^ 


ogical factor of heredity. It is common knowledge that all 
men are not born equal, and that they have inborn differences 
which are determined by differences in their ancestry. It is 
well known that certain mental and physical defects may crop 
up generation after generation in the same family; while on 
the pleasanter side of the picture, the researches of Gallon and 
others give strong grounds for the conclusion that as " long as 
ability marries ability, a large proportion of able offspring is 
a certainty." * " Ability," continue the Whethams, " is a more 
valuable heirloom in a family than mere material wealth, 
which, moreover, will follow ability sooner or later. ... It 
may be that the lineal inheritance of material wealth by suc- 
cessive generations will cease to be compatible with the insti- 
tutions of a future stage of civilisation. But, whatever be the 
political or social constitution, ability must always make its 
mark, and remain as a very real form of capital to the indi- 
vidual and the family who possess it. ... Health, character, 
and ability are assets which cannot be divorced from the indi- 
vidual. ... No collectivist state can deprive him of their 

These are stirring words, and, in the main, obviously true. 
Nevertheless it is easy to exaggerate the importance of Heredity 
as an economic factor. For, in the first place, as regards its 
general influence, there is the qualification, insisted upon by 
the same authors, that " the inborn qualities of mankind . . . 
may be established, maintained, and extended in a family by, 
and only by, appropriate marriages." And there is little doubt 
that, from the eugenic point of view at any rate, a large pro- 
portion of able men make inappropriate marriages. In most 
families, there is a vast mixing of strains, which, in the course 
of a few generations, is likely to produce " regression to the 
normal." This fact is important when we are considering 
mankind in the mass, rather than the interesting exceptional 

In the second place, it is latent capacity rather than active 
ability that is heritable; whether the capacity remains latent or 

1 Mr. and Mrs. C. D. Whetham, The Family and the Nation. 



not must obviously depend on external circumstances and 
happenings. The fact is that, in tracing the influence of 
heredity in human families when it is not a question of some 
comparatively simple physical or mental defect it is not 
possible to isolate the influence of environment, although it is 
often tempting to ignore it. For parents have so many other 
ways of transmitting to their children their good and bad 
qualities and their peculiarities, than by the natural processes 
of marriage and birth. 

Lastly, it is evident that such hereditary elements in ability 
as vitality and intelligence, even if they do always " make their 
mark," can manifest themselves in a number of different ways. 
Whether or not they are diverted into economic channels must 
depend to a large extent on environment; for the characteristics 
which make a successful captain of industry are not essentially 
different from those which make a successful general, for 
example. It is certainly much less common to find economic 
ability coming out in successive generations than ability in a 
more general sense. And the reason is not far to seek. Great 
fortunes are made by those who have not only the capacity 
but the desire to make them, and the desire is more likely to 
be strong when ability feels itself restricted and confined by 
poverty. Hence when a man of economic ability makes a 
fortune from small beginnings and provides handsomely for 
his descendants, such ability as the latter inherit is much less 
likely to manifest itself in economic directions than if they had 
been left in comparatively poor circumstances. A large in- 
heritance obviously facilitates the acquisition of more material 
wealth, but at the same time reduces the incentive to acquire 
it. We shall return later to other implications of this observa- 

6. For the above reasons, it is clear that the influence 
on the distribution of earning power of the biological factor 
of heredity alone must, in general, be comparatively weak. 
It is, however, supported by more potent economic factors 
affecting environment. Quite apart from the influence of un- 
equal inheritances and gifts of actual property, it is obvious 



that, as things are, the well-to-do parent can procure for his 
children a more healthy environment and a better education? 
than the poor, and can thus equip them for the more highly-! 
paid and attractive employments. It is unnecessary here to 
elaborate the full nature and importance of such economic' 
advantages. But it is necessary to point out that they must be 
treated as distinct from those arising from the actual inherit- 
ance of property. The former advantages would remain, if 
inheritance were abolished to-morrow. Nor can they be 
treated as roughly proportionate to inheritances. For, in the 
first place, they are, of course, much more evenly distributed, 
not only because of public expenditure on education and 
health services, but because, even in the absence of such ex- 
penditure, the power of a private income to increase health, 
strength, and mental ability is obviously very limited. 1 And, 
in the second place, the more a parent spends out of a given 
income on improving the health and knowledge of his children, 
ceteris paribus the less he has to invest in concrete property 
which they can inherit. 

1 In other words the marginal utility of income for these pur- 
poses diminishes very rapidly after a certain point, and when very 
large incomes are reached the total utility is likely to diminish. 
See on this point Robson, Relation of Wealth to Welfare, p. 154, 
and passim. The author, I think, overstates his case in some 





! 1. GIVEN our existing system of private property and con- 
tract, there are three main causes of unequal distribution 
unequal abilities, as determined by heredity and environment; 
unequal inheritances and gifts of property; and unequal luck 
as regards circumstances which it is beyond the power of the 
individual either to forecast or control. 1 These three factors 
are not, of course, independent of one another, as each reacts 
upon the other; and it is therefore a somewhat difficult task 
to single out any one factor, to trace its influence, and to 
determine its relative importance, as compared with the other 
factors. Nevertheless, it is desirable to make the attempt. For, 
whether we are economists or laymen, any rational opinion 
as to the effectiveness and merits of policies intended to reduce 
inequality of distribution, must depend, in the last analysis, on 
our theories with regard to three questions first, what are 
th( causes of inequality, second, how far is each cause in- 
ev able or desirable from other points of view, and third, 
vil at is the comparative importance of each cause. Economic 
ai ilysis must, therefore, provide an answer to each of these 
tl ee questions, if it is to be an adequate guide to public 
o nion and public policy. The first and third questions are 
4 estions of fact. The answer to the second question must 
j ays be largely a matter of private opinion or guesswork, 
sin# other people's motives and feelings can never be pre- 
cisely ascertained and we cannot forecast with accuracy how 
human beings will react to changed surroundings. 

2. Modern economic theory has done much to clear up 
the first question; it is beginning to discuss the second with 
less prejudice and more attention to psychology; but hitherto 

1 Cp. Taussig, Principles, II, p. 246; Caiman, Wealth, Chap. XI; 
Dalton, Inequality of Incomes, Part IV, Chaps. I and IV. 



it has done little to examine the third question, largely because 
the data available are meagre and indeterminate. There is, in 
fact, no general agreement among economists as to the relative 
importance of unequal inheritances, as compared with the 
other causes of inequality. 

"Everyone knows," wrote Dr. Cannan in 1905, "that in 
all except the newest countries, the inequality in the amounts 
of property which individuals have received by way of bequest 
and inheritance is by far the most potent cause of inequality 
in the actual distribution of property." 1 But I doubt if that 
opinion would command general approval in 1927. The wild 
fluctuations in prices since 1914, and the growth of the 
"nouveaux riches" which came about during inflation and 
the boom period, have called attention to the importance of 
chance changes in values, as a factor in distribution. Unstable 
prices magnify the effects of unequal luck and unequal ability 
in speculation; and it is these that Mr. Keynes, writing in 
1926, blames chiefly for unequal distribution, when he writes : 
" Many of the greatest economic evils of our time are the 
fruits of risk, uncertainty, and ignorance. It is because par- 
ticular individuals, fortunate in situation or in abilities, are 
able to take advantage of uncertainty and ignorance, and also 
because, for the same reason, big business is often a lottery, 
that great inequalities of wealth come about." a Dr. Cannan 
had suggested (in the same article quoted above) that the 
comparative potency of inheritance as a factor in the distribu- 
tion of property " is likely to grow, rather than to diminish, 
in the future. As time goes on, the savings of each generation 
of men must come to bear a smaller and smaller proportion to 
the property which has come down to them from previous 
generations." But against this, one may set the opinion of 
Sir Josiah Stamp that a century ago " the effect of inheritance 
and accumulation on distribution was far greater than to-day, 
when many of the highest fortunes have been made within 

1 The Division of Income, pub. Quarterly Journal Economics, 
May, 1905, reprinted in The Economic Outlook, pub. 1912. 
* The End of Laissez-faire, p. 47. 



the lifetime of the holder, without significant initial resources "; 
and that " taxation and family diffusion tend to reduce the 
long range inheritance effect in such a way that, even if in- 
heritance ceased altogether, the existence of the very large 
fortune would be very marked under the influences of other 
economic factors." * 

It is interesting, on the other hand, to find in America, 
where opportunities for enterprise and industry to achieve 
great rewards are generally understood to be greater than in 
" old " countries like Britain and Europe, that Taussig and 
Irving Fisher follow Dr. Cannan in stressing the importance 
of unequal inheritances as a cause of inequality. "The in- 
fluence of inheritance is enormous," writes Prof. Taussig. 
"... Obviously this alone explains the great continuing gulf 
between the haves and the have-nots." a Irving Fisher throws 
the emphasis on the same factor, when he declares that the 
distribution of property " depends on inheritance constantly 
modified by thrift, ability, industry, luck and fraud." * 

3. It is evident, indeed, that the institution of inheritance 
cannot itself be an original or primary cause of unequal dis- 
tribution. For the chief immediate cause of unequal inherit- 
ances in one generation is obviously to be found in the 
unequal distribution of property in the preceding generation. 
Theoretically, indeed, great inequalities of inheritance might 
arise out of a perfectly equal distribution of property in the 
preceding generation, owing to differences in the fertility of 
families and if there were substantial freedom of bequest 
in the caprices of individuals. But, in fact, the differences 
arising from such causes are not likely to give rise to great 
inequalities. Hence, if we are not to argue in a vicious circle, 
the causes of unequal inheritances, and of inequalities of 
wealth generally, must be traced ultimately to differences in 
the mental and physical qualities of human beings, and the 
unequal luck attending individual efforts. " No doubt at the 

1 Economic Journal, Sept. 1926, pp. 355 and 356. 
* Principles of Economics, Vol. II, p. 246. 
1 Elementary Principles of Economics. 



outset," says Taussig, " all differences arose from the inborn 
superiority of some men over others. The savage chief excels 
his fellows in strength and cunning. Throughout history the 
strong and able have come to the fore. They continue to do 
so in the peaceful rivalry of civilised communities. . . . But 
at a very early stage in the development of society, this original 
cause of difference is modified, often thrust aside, by the per- 
petuation of established advantages. In the feudal system, 
and in any society organised on the basis of caste, inequality 
is maintained by force of rigid law. In the supposedly free 
and competitive society of modern times, advantage still tends 
to maintain itself. It does so in two ways, through the in- 
fluence of environment and opportunity, and through the in- 
heritance of property." 1 

Thus inheritance perpetuates and may intensify inequalities 
arising originally from other causes. In that sense, it is a 
secondary cause of inequality; but that is not, of course, to 
say that it is of secondary importance. The extent of its in- 
fluence on distribution remains an open question, which cannot 
be decided merely by theoretical reasoning from general ob- 
servations and generally accepted premises, but requires in 
addition something in the nature of a quantitative analysis of 
the relevant facts. 2 The first step, however, is to examine the 
nature of that influence, leaving over till later the question of 
its comparative importance. 

4. Given the fact of unequal inheritances, in what ways 
do they affect the distribution of incomes from the two chief 
sources property and labour? The effect on the distribution 
of property is the most evident. The amount of an indivi- 
dual's property depends on three things : on what he receives 
by inheritance or gift from the living: on what he saves: and 
on subsequent changes in the value of his property which he 
could not predict with certainty and due to causes largely 
independent of his own action. Thus, for the purpose of 
preliminary discussion, one may divide an estate into three 

1 Principles, Vol. II, p. 246, 2nd edn. 
8 Such as is attempted in Chaps. V, VI, and VII. 


constituent elements inheritance, saving, and windfalls. For 
the moment, one need not maintain the distinction between 
inheritance and gifts from the living. But one must remember 
that the second element may be non-existent or negative, if 
the individual spends beyond his income and thus uses up 
other people's savings, and that gifts made by him will also 
modify the total. The third element may also frequently be 
negative, and ought more properly to be called "windfalls 
minus unexpected capital losses." 

I had better say here that such a classification is not strictly 
scientific, and the distinctions and definitions involved cannot 
be maintained in practice, unless some entirely arbitrary rule 
is employed. The same criticism applies to the two-fold 
classification of property into " inherited " and " saved," in- 
sisted on by Prof. Rignano and others. Later on, we shall see 
the difficulty of interpreting any such classification, when it 
comes to dealing with the statistics of the question, and with 
the administrative side of inheritance taxation. 1 But, for the 
present, the above classification may be retained as convenient 
and intelligible for our purpose. 

As regards the inherited part, clearly the greater the pro- 
portion which this bears to the whole property in the aggregate 
of individual cases, the greater is the relative importance of 
inheritance, as a factor in distribution. 

But the inherited portion is evidently also one of the factors 
which determine the second or saved portion. For the larger 
a man's income, the greater will usually be his ability to save, 
and, since the size of his income is partly determined by the 
amount of his inherited property, the latter will also partly 
determine the amount of his saving. 

Another factor, which will influence the total amount of his 

"saved" property, is the age at which a man inherits. If 

other things (including the length of life) were constant, it is 

evident that the earlier the age at which a given inheritance is 

received, the greater the total saving which can be made by 

the inheritor in his lifetime. It may also be noticed that the 

1 See Chap. XL 



recipient of a large income chiefly derived from property is 
likely to be able to save more in his lifetime than one who gets 
the same income chiefly from work. For the large earned 
income probably comes to an end some time before the death 
of the earner, while the income from property unless the 
latter be a wasting asset will last beyond the owner's death. 
The argument supposes, what is in most cases likely to be true, 
that the large earned income is not obtained at a much earlier 
age than the large income from inherited property. 

" Windfalls " or capital losses, caused by unforeseen changes 
in value, do not necessarily affect inheritors of large estates 
more than other persons, except in so far as inheritors who 
remove themselves from active business are less likely to fore- 
see changes in values than capitalists who are in closer touch 
with the market. But apart from its indirect effects on char- 
acter and business ability, the possession of a large or small 
inheritance cannot ip the nature of things influence increases 
or decreases in property due to unexpected changes in value, 
except in so far as the absolute extent of the change, whether 
positive or negative, will naturally be greater the larger the 
amount of the property affected. Nor are such changes likely 
to aggravate inequalities arising from inherited wealth. For, 
as Dr. Cannan points out : " If a number of persons are given 
unequal amounts by chance, and then some other chance 
disturbs their amounts, there is no reason for supposing 
that the second distribution will be more unequal than the 

Accretions of capital due to deliberate speculation may be 
considered as intermediate between pure "windfalls" and 
saving proper. These may be facilitated, by the possession of 
a large inheritance, provided, as above, that its possession does 
not blunt the edge of a man's business acumen or deter him 
from desiring to acquire more property. In the first place, 
the possessor of a large capital is in a better position to pick 
up valuable market information than the small investor. In 
the second place and this is perhaps more important the 
former can afford to risk not only a larger absolute sum but a 



larger proportion of his total capital, and thus stands to gain 
a proportionately larger amount. On the other hand, in the 
event of his forecasting proving wrong, he stands to lose a 
proportionately larger amount. But, in the case of intelligent 
speculation, the chances of gain are ex hypothesi greater than 
the chances of loss. 

5. The influence of inherited property on the distribution 
of incomes from work is naturally less marked than in the 
case of incomes from property. The great effect on earnings 
of other hereditary economic advantages of birth and environ- 
ment has already been discussed, and is certainly more im- 
portant than that of inherited fortunes by themselves. The 
recipient of a fortune, which is sufficient to maintain him 
without any additional income, may decide to do no work, or 
to do unpaid work. In so far as that is the case, large earnings 
are not likely to go with large inheritances. On the other 
hand, the possession of inherited property is undoubtedly 
an asset to the man who wishes to gain an additional income 
from work. If the inheritance is sufficient to remove any 
urgent necessity to get work at any price, he can wait till a 
sufficiently attractive opportunity presents itself, and is able 
without difficulty or anxiety to secure the full market value of 
his services. In the second place, his inheritance may bring 
with it business opportunities denied to those without the neces- 
sary capital and influence. 

6. In considering its effects on earning and saving, we 
ought indeed to distinguish between the passive inheritance of 
property of which the extreme example is a settlement in- 
vested in gilt-edged securities which requires no active man- 
*agement by its possessor, and the inheritance of, say, a 
director's or partner's share in a business, of which the subse- 
quent value will depend largely on the activity and ability of 
the holder. The large rentier inheritor has little incentive to 
engage in active work for economic ends, and is likely as a 
rule to make little use of the superior earning-power which 
his inherited capital indirectly affords. But the inheritor of 
an active part in a " going concern " has both the incentive 



and the opportunity to increase his property income by the 
" earnings of management." 

Here, again, the age at which the property and the oppor- 
tunity are inherited is of the utmost importance in its effects 
on the recipient's earning power. If the inheritance does not 
come till after middle age, it comes too late for the inheritor 
to make much active use of it. The latter's career will have 
been made or marred by that time. Hence it follows that, in 
general, a gift during the parent's lifetime is of more value 
to an active descendant than an inheritance at the former's 
death of the same nominal amount. Probably, unequal in- 
heritances alone as distinct from gifts and from hereditary 
advantages of birth, education, and early environment have 
actually comparatively little influence on the distribution of 
earnings. 1 

But the influence of gifts and inheritances on the distribution 
of property, both directly as a proportion of the total, and 
indirectly through their effect on the distribution of savings, 
is evidently very considerable. And we must remember that, 
although the share of the total income going to property is 
smaller than that going to labour (in the broad sense), the 
former is very much more unequally distributed than the latter 
and is a more important factor in the inequality of wealth 
generally than differences in earnings. 2 

7. Certainly the existence of unequal inheritances and 
gifts is one reason why property is so much more unequally 
distributed than earnings. It is not, however, the sole reason. 

1 In an investigation of a sample of some two hundred cases 
(see Chap. VI) 1 found that the average age at which the larger^ 
inheritances were received was about forty-two years, in the case 
of men. Over fifty per cent, inherited between the ages of thirty- 
six and fifty inclusive. Less than one in six inherited under the age 
of thirty years, and little more than one in ten over the age of 
fifty-five years. The inheritances taken into account were in the 
large majority of the cases those coming from fathers. If all in- 
heritances passing collaterally had been taken into account, the 
average age at inheritance would have come out somewhat higher. 

3 See Chap. I and Appendix to Chap. I. 



For, as we noticed on a previous occasion, savings are likely 
to form a larger proportion of large than of small incomes, so 
that even in the absence of private inheritances there would 
probably be greater inequalities of property than of earnings. 
But, in such a case, of course, since the ratio of property in- 
come to earnings would be much smaller, the way in which 
the former was distributed would have much less effect on 
the distribution of incomes as a whole. 

8. It is evidept that the influence of inheritance on the 
distribution of wealth must vary in different countries and at 
different periods, and that its potency as a cause of inequality 
depends on a number of variable factors. Chief among these 
are: The laws and customs governing inheritance and be- 
quest; systems of taxation; the extent to which philanthropy 
is practised by rich testators; marriage customs; the size of 
families; and the degree of stability of economic and political 
conditions. With the exception of the modifying effects of 
taxation, which is reserved for the last part of this book, 1 the 
comparative effects of the other factors mentioned on in- 
equalities arising from inheritance are discussed in the fol- 
lowing chapter. 

1 See Chapters IX, X, and XI. 





1. THE laws of inheritance which prevail in England and 
in most English-speaking countries allow a more or less com- 
plete freedom of bequest. By the law of England an English- 
man can, by his last will and testament, order the disposition 
of the whole of his property l to whomsoever he pleases. In 
this respect, English law differs radically from that in force 
in the principal countries of Europe, where a certain portion 
of a man's property is reserved for the benefit of his family, 
and only the remainder is at his free disposal. The laws 
governing the extent and disposition of the reserved portion 
or legitim * exhibit considerable differences in different coun- 
tries, but some form of legitim is to be found in the laws of 
succession of all the great European states (except Russia, 
where inheritance was officially abolished after the Revolu- 
tion) as well as in South America, in South Africa, and in 
Louisiana. In most of the United States there is no legitim, 
but the State law lays down certain rights of succession for a 
surviving spouse though not for the children. Scotland alone 
of the United Kingdom restricts freedom of bequest in the 
interests of the children; though the legitim in Scottish law 
applies only to moveable or personal estate." 
The most rigorous regulation of inheritance is to be found 

1 Except such as has come to him under a settlement which has 
force beyond his death, and the portion which the State takes in 

" Pars Legitima in Roman Law. 

* Under Scottish law if a man leaves wife and children, one-third 
of his personalty goes to the wife; one-third to the children, and 
one-third is at his free disposal by will. If he leaves no widow but 
only children, one-half of the personalty is legitim. 



in the Code Napoleon, which prevails to this day in France, 
Holland, and Belgium. The proportion of a man's property 
which is at his free disposal is regulated according to the 
number of his children. It is one-half if he leaves only one 
zhild, one-third if two children, one-quarter if three children, 
and so on. If no children survive him, but there are grand- 
children, the same legitim goes to them as would have passed^ 
to their parents had the latter survived. If the parents of an 
unmarried or a childless man survive him they alone are 
entitled to a portion of his property namely one-half if both 
mother and father are alive, one-quarter if only one parent. 
Only where there are no descendants or ascendants in the 
direct line, may the whole property be freely disposed of. 

The legitim is divided equally among the children, without 
distinction of sex. 

The Code Napoleon allows no means of evading the legitim 
regulations. They apply to gifts during life as well as to 
bequests at death. By article 920, "Donations . . . which 
exceed the portion of the property which can be disposed of 
shall be reduced to that portion when the succession becomes 
open." Nor can a man avoid the equal distribution of 
property among all his children, both male and female, by 
settlements or entails. For, by Article 896 of the Code, " En- 
tails are prohibited. Every provision by which a donee, an 
heir appointed or a legatee shall be required to keep property 
and to return it to a third party, shall be void. . . ." The only 
exceptions are settlements, restricted to the portion of the 
parents' property which is not legitim, by which the children 
have a life interest and the property then passes to the grand- 
children. Even then such settlements are only valid if the 
property is to be equally divided among the children, and the 
property cannot be tied up beyond the second generation. 

I have given in some detail the provisions of the Napoleonic 
Code respecting the legitim, because it is the most rigorous 
and clear-cut of continental inheritance laws. Few English- 
men realise how great is the difference between the European 
laws of succession and their own, or that the freedom of be- 



quest, which they enjoy, far from being the general rule among 
civilised peoples, is a privilege peculiar to English law. 

3. But it is not an ancient privilege. In the twelfth and 
thirteenth centuries, the legitim was either the general custom 
or part of the common law of England. Up to the end of the 
seventeenth century it was enforced, as a special custom, in 
the ecclesiastical province of York, the City of London, and 
various districts of Wales. It remains part of the law of Scot- 
land to-day. 1 In cases where the testator left a wife and 
children, only one-third of his personalty was disposable by 
will, the remaining two-thirds being the legitim divisible be- 
tween the wife and children. If the testator left a wife only 
or children only, the legitim was limited to one-half. 2 , The 
legitim customs were finally abolished in England and Wales 
by a series of statutes which followed shortly after the Revolu- 
tion of 1688. 8 

The legal right to dispose freely of lands and immoveable 
property is also of comparatively recent growth, but the ability 
to do so was not in fact absent in feudal times. " At common 
law under the feudal system no lands or tenements were de- 
visable by will, except by custom in certain boroughs and in 
Kent. The difficulty was obviated by the Doctrine of Uses; it 
was held that the use of the land might be devised, and ac- 
cordingly ... a testator had, for all practical purposes, the 
right of devising the land itself." * The process was made 
a little simpler in the sixteenth century, and finally by the 
Wills Act of 1837 real and personal property were put on the 
same footing, equally disposable by will. 6 

1 See Pollock and Maitland, History of English Law, Bk. II, 
Ch. VI, 3. 

3 The legitim was confined to personalty, because in early times 
realty could not be disposed of by will. See infra. 

8 Statutes of 1693, 1703 (for York), 1725 (for London), 1695 (for 

* Halsbury, Laws of England, under "Wills," Vol. 28, p. 518, 
footnote; also p. 517, footnote. 

6 By statute of 1540, land in the possession of testator at the 
time he made his will could be disposed of as a conveyance. 



It seems often to be forgotten by continental writers, who 
make the common mistake of paying too much attention to 
English laws and too little to English customs, that the Law 
of Primogeniture only applies to land which has not been 
disposed of by will or settlement. In other words, the law 
only applies in the very few and exceptional cases where the 
proprietor dies intestate. There is no obligation on the Eng- 
lish landowner to leave his estates to his eldest son, if he does 
not wish to do so, unless it be an obligation imposed by a 
settlement or entail in the previous generation. "The real 
means by which owners of land in England are enabled to keep 
land in their families for a lengthened period of time is the 
great liberty which the law allows in disposing of every kind 
of property by deed during life, or by last will and testament 
to take effect upon property after death." * 

4. The ability by will and settlement to obtain posthumous 
control over one's property has two important limitations in 
England. By the Rule against Perpetuities a man cannot " tie 
up " his property for more than two generations. 2 This Rule 
applies to all forms of property, real or personal, but it does 
not prevent descendants re-establishing the entail for another 
period if they so wish. By the Rule against Accumulations, 
a limit is put to the period during which a testator may direct 
that the income from his property shall accumulate at com- 
pound interest, unless the accumulation is bequeathed for the 
reduction of the National Debt. 8 Similar laws of a more or 
less rigorous nature limiting the period of trusts and entails 
are to be found in other countries, where they are not ex- 

1 Eyre Lloyd, Succession Laws in Christian Countries. 

a The " perpetuity period " is lives in being plus twenty-one years 
plus a period for gestation. 

8 There are alternative time limits twenty-one years from testa- 
tor's death, or the minority of the heir or legatee. By the Super- 
annuation and other Trust Funds (Validation) Act, 1927, the Rule 
against Accumulation does not apply to trust funds bequeathed for 
the reduction of the National Debt provided the Treasury agree to 
accept them. 



pressly forbidden, as under the Code Napoleon. 1 

5. I do not propose here to enter into a discussion of the 
merits and demerits of different systems of inheritance laws 
from the standpoint of social ethics, but only to consider their 
comparative effect on the distribution of property. We may 
take as the two extreme examples of different types of in- 
heritance law, the Code Napoleon, with its rigorous provisions 
for an equal distribution of the parents' property among their 
family, and the English system of freedom of bequest, coupled 
as it is with the custom of primogeniture in the disposal of 
land. Is there a great contrast in the effects of the two 
systems on the distribution of property? Many writers have 
thought so. 

De Tocqueville, one of the first writers on social and eco- 
nomic subjects to realise the importance of inheritance laws, 
but not the most logical of thinkers, has drawn a vivid picture 
of the contrast between the effects of the English and the 
French systems. " Framed in one way," he writes, " the law 
of succession combines and concentrates property and power 
in a few hands : it causes a landed aristocracy to flourish. But 
guided by other principles, and framed on other lines, its action 
is even more immediate: it divides, distributes and disperses 
both property and power . . . until by its incessant activity the 
bulwarks of the influence of wealth are ground down to the 
fine and shifting sand which is the basis of democracy." " In 
countries where the legislature has established an equal divi- 
sion of inheritances, property and particularly landed property 
must have a permanent tendency to decrease." In a country 
like France where families are small, this tendency would 
take some time to make itself felt, but the law has also a 
psychological effect on landed proprietors, who see that in 

1 Eyre Lloyd, op. cit., writing 1877, states that entails and trusts 
are permitted in Austria and Bavaria as far as the first generation 
unborn in German Common Law, in Russia, Portugal, Saxony, 
Servia, South America (except Bolivia and Brazil), in Valais, Vaud, 
and Wurtemberg. Entails were prohibited in Bolivia, Brazil, 
France and Netherlands, Cantons of Grisons and Lucerne, Norway, 
Venezuela, and Spain. 



the course of time their land will be entirely dispersed and 
are therefore tempted to sell it. " Thus not only does the law 
of successions make it difficult for families to preserve their 
estates intact, but it takes away their desire to try and makes 
them co-operate, so to say, in encompassing their ruin. . . . 
In these two ways, it strikes at the root of landed property and 
rapidly disperses families and fortunes." Its influence is " per- 
petually conspicuous in our country (in France), overthrowing 
the walls of our dwellings and removing the landmarks of our 
fields." ' 

De Tocqueville was, on the whole, favourable to the French 
system of equal partition among the family, as an instrument 
of social democracy. But for that very reason others have 
criticised it the more severely. " When the English wished 
to put the finishing stroke upon the slavery of Ireland," wrote 
Montalembert in 1857, "they passed a law in 1701 by which 
the freehold property of a deceased papist should be equally 
divided among his children, unless the eldest became a pro- 
testant, in which case he could become exclusive heir to the 
whole. When they came to repent of their long injustice 
towards their victim, the first act of gradual emancipation was 
to abrogate this law in 1778, and thus to re-establish for the 
Irish papists the dignity and independence of property." He 
added that " as long as the present law (of succession) may 
exist in England, so long as it sustains no change beyond 
restraint from abuse and improvement in its maintenance, 
the future of England is assured. The storm will not seriously 
rage against her until the day when a movement of public 
opinion declares itself against entails. Then, but not till 
then, will she set out upon that downward path which precipi- 
tates people, after passing through the shocks of revolutions, 
into the lowest depths of despotism." a 

But the contrast which De Tocqueville and others have 
drawn between the effects of the French and English laws of 

1 De Tocqueville, Democratic en Amerique, Vol. I, pp. 57-8 
(13th Ed. 1850). (There is an English trans, by Henry Reeve.) 
3 Quoted by Eyre Lloyd, op. cit., pp. 28-9. 



succession is quite evidently an Exaggeration, and De Tocque- 
ville's argument exhibits a number of logical flaws. It is not 
true, for example, that under the French system "property 
must have a permanent tendency to decrease." If there is no 
saving, and while population increases the total amount of 
property remains the same, then, whether the legitim is in 
force or not, the average property per head must decrease. 
But there is no necessary reason why the legitim law should 
prevent capital from keeping pace with population. De Toc- 
queville, accustomed to a mainly agricultural country, was 
evidently thinking rather of the decrease in the physical ex- 
tent of landed estates. But in this sense also, his remark is 
unjust to the legitim. Since the land of a given territory is 
limited in extent, there must be less of it per head as popula- 
tion grows, and some children therefore must get less than 
their parents. At the same time, it must not be forgotten that 
the value per acre is generally likely to increase with the de- 
mands of a growing population. Under the French system, 
the reduction in extent per head is noticeable, because each 
child gets a smaller holding; while in England where the 
custom of primogeniture in land prevails, the eldest child gets 
the same size of estate, while the other children go without. 

But the custom of primogeniture in England is not only not 
compulsory, but it applies solely to landed estates. Its his- 
torical influence in conserving landed property in a few hands 
is not disputed, and, in earlier times, when land was the chief 
form of property, it must have had considerable economic 
importance in increasing inequality. But to-day and in the 
last century or so, landed estates have ceased to be the most 
important form of property in this country. 

6. There is, however, evidence that English possessors of 

very large estates, whether invested chiefly in personal or in 

real property, frequently favour one particular son, though not 

necessarily the eldest. Such cases are not confined to those 

with hereditary titles, who generally leave the lion's share of 

the estate to the eldest son. 1 It is also common, in the very 

1 See below, Chap. VI, pp. 164-5. 



wealthy classes, for the sons to receive a larger share than 
the daughters. In the case of moderate and small estates, 
however, equal division of the estate among surviving de- 
scendants is much more common. The fact is that English 
parents are not uninfluenced by the ideas of family justice on 
which the continental law of legitim is obviously based. Where 
there is no more than enough to provide a " moderate com- 
petence " for each child, equal division of the estate is likely 
to be the general rule. But, where the estate is large enough 
to secure for each child that state of comfort and affluence to 
which he or she has become accustomed, and still to leave a 
large surplus, that surplus is likely to be left to the son who 
inherits his father's position in life, whether as a business man 
or a landed proprietor. 

Occasionally, indeed, that surplus may be left to charities 
and employees. But it is very rare, in England, for a parent 
with surviving issue to leave any considerable proportion of 
his estate to charities, however much childless men and women, 
with no family claims on them, 1 may do so. And the latter, 
under the law of legitim, would have substantial freedom of 

On the whole, therefore, it may be concluded that, in prac- 
tice as in theory, the legitim is less favourable to the concen- 
tration of property than freedom of bequest. But the differ- 
ence in the effects of the two systems has often been greatly 
over-estimated, and the law of legitim is not the potent instru- 
ment for levelling inequalities that De Tocqueville and others 
suggest. The most a rigid enforcement of the legitim can do 
is to prevent the inequality of inherited wealth from increas- 

It is an error to suppose that the constant partition of the 
estates of parents among their children in equal portions must 
necessarily reduce the inequalities arising from inheritance, as 
population increases. For, in the extreme case, if all families 
were the same size, and hi each family all the heritable 
property was equally divided among the children, the relative 

1 See next section. 
D 97 


inequality of distribution would remain the same as in the 
previous generation, except for the modifying influence of 
fresh accumulation and fortuitous changes in values. But there 
is no reason to suppose that fresh accumulations will neces- 
sarily reduce inequalities of inherited property, and we know 
that the extent of a man's saving is partly determined by what 
he has inherited. If there were no fresh accumulation, and 
property values remained stable, each estate, under the law of 
legitim, would in course of time naturally become smaller and 
smaller; but the diminution of individual estates would be in 
exactly the same ratio for all classes. Their relative position 
would remain unchanged. 1 

7. Actually, property in France does appear to be rather 
less concentrated than in Britain, though the difference in this 
respect is less than has sometimes been asserted, and not 
nearly so marked as that, for example, between Britain and 
Australia. According to the French official statistics relating 
to the tax on Successions, about 30 per cent, of those dying 
aged twenty-five years and over in the years 1909-13 left 
estates in excess of 2,000 fr. (80). In the United Kingdom, 
on the other hand, the Estate Duty figures for the years 
1911-13 show only 17 per cent, of decedents over twenty-five 
leaving property in excess of 100. The 100 limit and the 

1 I do not understand Sir Josiah Stamp's contention that " so far 
as all past wealth is concerned, without accumulation and concen- 
trative power for new wealth being fully maintained, there must be 
an increase in equality if wealth is left to all the children. . . ." 
(Econ. Journal, Sept., 1926.) For, as he himself goes on to point out, 
* fc if five per cent, of the adult population own half the property, 
then in two generations (assuming a similar birth-rate to the 
general) without any new accumulation and say three times the 
total population, this five per cent, would still own one-half, but 
they would be three times as numerous, and their individual shares 
only one-third the size." By what definition or measure of in- 
equality can the final distribution be found less unequal than the 
first? If, indeed, we adopt Dr. Dalton's view that " proportionate 
subtractions from income increase inequality," then, in the above 
example, the distribution would become more and more unequal. 
(See Dalton, Appendix to Inequality of Incomes.) 



2,000 franc limit may perhaps be taken as roughly comparable, 
because not only was the value of property per head in France 
rather lower than in Britain, but evasion and understatement 
were certainly much greater. At the top of the scale in France, 
we find 0-1 per cent, of the decedents leaving estates of over 
one million francs (40,000), as against 0-18 per cent, in Britain 
with over 50,000. This class left over 40 per cent, of the 
total property passing at death in Britain, but only 27 per 
cent, in France. 19 per cent, of the decedents in France were 
in the 2,000 fr. to 10,000 fr. class (80 to 400) as against 
9 per cent, in Britain in the 100 to 500 (net) class. 

These figures are not very reliable indices, because in the 
first place the relative extent of evasion and understatement in 
France and in Britain is not known, and in the second place, 
the relative ages and death-rates of property-owners in different 
classes are not the same as in Britain. Nevertheless, there are 
clear indications that those with small properties form a 
larger class in France than in our own country. But the 
property of French peasants and petits bourgeois accounts in 
the aggregate for a very small proportion of the total. The 
richest 1-4 per cent, of decedents (over twenty-five years of age) 
with estates over 100,000 frs. were found to leave about 60 
per cent, of the aggregate property, while the same proportion 
of the people dying in Britain left a little over 70 per cent, of 
the total. The difference between the degree of concentration 
in the two countries is not, therefore, very important from 
a practical point of view, when one looks at relative inequality 
rather than at the numbers of small property owners, without 
reference to their share in the aggregate. 1 Nor can the differ- 
ence, such as it is, be ascribed entirely or even mainly to the 
different laws of inheritance. For the more extensive practice 
among Frenchmen of making gifts during life to their children 
would contribute partly to the same result. Moreover, one 
would expect, on other grounds, to find a rather greater 
degree of inequality in the more highly industrialised country. 

1 See note at end of chapter. 


8. The wider diffusion of landed property in France, and 
the continuous sub-division of holdings, has repeatedly been 
ascribed to the action of the law of legitim. But John Stuart 
Mill's refutation of this theory was obviously logical and 
sound. He points out that the division of an inheritance does 
not necessarily involve division of the land, " which may be 
held in common, as is not infrequently the case in France and 
Belgium; or may become the property of one of the co-heirs, 
being charged with the shares of the others by way of mort- 
gage; or they may sell it outright and divide the proceeds." 
And he rightly concludes that " in all countries in which the 
division of inheritances is accompanied by small holdings, it 
is because small holdings are the general system of the country, 
even on the estates of the great proprietors." 1 The fact is 
that, as De Tocqueville himself has been careful to point out 
in another context, the sub-division of estates was the subject 
of remark in France before the Revolution of 1789, at a time 
when, under the ancient law of France, entails were still per- 
mitted, as in England. 2 The difference in the distribution of 
land as between France and England must, therefore, be 
traced to differences in social characteristics and institutions, 
other than the laws of succession; and the latter themselves 
owe their special forms not so much to political accident as to 
differences in character and custom. 

1 Mill, Principles (7th edition), Vol. II, Bk. V, Chap. IX. 

2 See De Tocqueville, France before the Revolution of 1789 
(Reeve trans.), p. 22 : " It is a vulgar error to suppose that the sub- 
division of landed property in France dates from the Revolution." 
Turgot wrote in 1770 that " the division of inheritances is such that 
what sufficed for a single family is shared among five or six chil- 
dren," and an Intendant reported about 1780 that " Inheritances 
are divided in an equal and alarming manner; and as everyone 
wishes to have something of everything and everywhere, the plots 
of land are infinitely divided and perpetually subdivided." Arthur 
Young, before the Revolution, was struck by the large number of 
small estates of peasant owners. 

Entails in -perpetuity seem to have been allowed before 1560, 
when the Ordinance of Orleans limited them to two generations. 
(Eyre Lloyd, op. cit.) 




The following table of French estates passing at death is based on 
the French official figures for the average of t the years 1909-13, 
which are reproduced in Colson, Cours d'Economie Politique, 
Vol. Ill, pp. 407-10. For individual years, see Annuaire Statist ique. 
All estates over the value of one franc are supposed to come under 
review by the taxing authorities. But there is certainly a large 
amount of evasion and understatement at both ends of the scale. 
Note also that the taxable value of donations in the same period 
was about 44 millions a year (1,110 million francs), which is cer- 
tainly considerably higher than the British pre-war total of gifts 
inter vivos subjected to Stamp Duty. (See my estimate in Chap. X, 
p. 247.) One possible result of the extensive gifts, and mar- 
riage settlements in France is that (according to a rather shaky 
estimate of M. de SSailles based on figures for 1900) the average 
estate of the French citizen actually diminishes progressively from 
the age of fifty onwards (see Strutt, in S./., June, 1910), while that 
of the British property owner increases up to the most advanced 
age. It follows that the average age of the holder of a unit of 
property would be lower in France than in England, and that, in 
the construction of a table of distribution among the living based 
on the figures for successions, the general " multiplier " would be 
higher than in England, and the " multiplier " applicable to the 
larger estates would be relatively higher than in England. Hence, 
distribution of property among the living in France would be 
likely to approximate more closely to the English model than the 
distributions at death suggest. 

The Death Duty figures for the United Kingdom in the years 
1911-12 and 1912-13, are given for comparison, as well as the per- 
centages for Great Britain in 1924-5. In each case, as in the 
French figures, I have taken the number of decedents (men and 
women) over twenty-five years of age as the total with which to 
compare the number of estates in the different classes. The figures 
for the value of property left by those with less than 100 (11 
millions in 1912, 18 millions in 1924) are of course largely guess- 
work. They are obtained by taking Professor H. Clay's estimate 
of the value of capital held by the living under the 100 limit, both 
before and after the War, and dividing it by the "multiplier" 
applicable to the lowest class of estates distinguished in the official 
statistics. (Clay, Distribution of Capital, Manchester Statistical 
Society, 1925.) 

While the richest 1-4% of decedents left 60-6% of the aggregate 
property in France, 1909-13, it may be estimated that the same 



France Successions 1909-13. 

Range with English 
equivalent at 
25 fr. =* 1. 



No. % 
of all 
over 25. 

Amt. % 
of Total. 

Not included as leaving 



property (over 25 years 



0-500 fr. 



(0-20) . 


500-2,000 fr. 

(20-80) . 





2,000-10,000 fr. 






10,000-50,000 fr. 

(400-2,000) . 





50,000-100,000 fr. 

(2,000-4,000) . 





100,000-1, 000,000 fr. 






Over 1,000,000 fr. 

(Over 40,000) . 





Total * declared over nil 





mill. frs. 



* This total includes some 14,000 declared estates left by those 
under twenty-five. This figure is taken from an official table of the 
age distribution of French estates in 1906 quoted by H. C. Strutt in 
S.J., June, 1910. 


United Kingdom, 

Great Britain, 

No. % of 1 
all dying Amt. % 
over 25 of Total, 
years.* ' 

No. % of 
all dying 
over 25 

Amt. % 
of Total. 

Under 100 (aged over 25 
100-1,000 . 
Over 100,000 














* The total includes inl912about400(outof70,500), and in 1924,800 
(out of 105,000) estates over 100 left by those under twenty-five years. 



proportion of the decedents in Britain left 72% in 1912, and 63% 
in 1924. The difference in these proportions, as between pre-war 
France and post-war Britain, is, therefore, very small. 

A very rough estimate of the distribution of incomes in France, 
in the years 1899-1901, is given in Colson, op. cit., Vol. Ill, p. 420. 
H% of the families are estimated to have got a little over one- 
fifth of the aggregate income, and one-half of the aggregate went 
to the richest 11-3% of families. In the United Kingdom, accord- 
ing to Professor Bowley, a little over 1 % of the separately assessed 
incomes accounted for 30% of the aggregate in 1910; while, after 
the War, Sir Josiah Stamp reckoned that one-ninth to one-tenth of 
the people got half of the aggregate income, before taxation was 
deducted (Wealth and Taxable Capacity, p. 95). But in view of the 
rough -nature of the French figures, and the fact that they refer to 
menages, while the British figures refer to individual incomes 
(though counting husband and wife as one), the comparison does 
not suggest that the distribution of incomes in France is much 
less uneven than in Britain. 

CHAPTER IV (continued) 


1. IT is clear that voluntary bequests for charitable pur- 
poses may have the same effect as a progressive Death Duty 
in moderating the inequality of inheritances, just as charitable 
gifts during life modify to some extent the inequality of in- 
comes. What we are concerned to know is how far the 
private philanthropy of testators does in fact have this equal- 
ising influence on inherited wealth. 

We have already observed that on the Continent the law of 
legitim restricts the proportion of his property which a man 
with a family may bequeath to strangers. But, in England 
and America, no such legal restriction exists to check the im- 
pulses to charity. The great sums bequeathed by Carnegie 
and by Rockefeller for the benefit of research and education 
have frequently been held up as shining examples of one of 



the ways in which the community at large benefits from the 
existence of millionaires. It is generally agreed that such 
noteworthy examples of prudent generosity are rarer on this 
side of the Atlantic. Mill observed, in the middle of the last 
century, that " in England, whoever leaves anything beyond 
trifling legacies for public or beneficent objects, when he has 
near relatives living, does so at the risk of being declared in- 
sane by a jury after his death, or at least of having the 
property wasted in a Chancery suit to set aside the will." 1 Cases 
may be quoted from the present century which show that that 
danger has not yet passed, 2 at least so far as concerns bequests 
to public authorities. 

Nevertheless, readers of the newspapers in this country are 
often impressed by the daily lists of substantial sums be- 
queathed to the churches, to philanthropic and educational in- 
stitutions, as well as to domestics and employees. 

2. If, however, one looks more closely at these lists, it is 
seen that such bequests, though often substantial in relation to 
the probable wealth of the recipients, usually form only a 
small proportion of the total estate of the bequeather. I have 
taken note of all the estates of over 50,000 gross value un- 
settled, of which particulars were published in The Times 
during the two months February and March, 1925, and have 
assessed roughly in each case the proportion of the total estate 
bequeathed to employees or for philanthropic purposes. The 
results may be tabulated as follows * : 

1 See Note to p. 283 of Vol. I of 7th Edition of Principles, Book 
II, Chapter II. 

2 See cases quoted on pp. 305-6 of Dalton's Inequality of In- 
comes. In 1913 a Mr. Johnson bequeathed 7,000 to certain hos- 
pitals under the Metropolitan Asylums Board. A member of the 
Board was unwilling to accept the money, holding that no person 
of sound mind could leave money in relief of rates. In 1919, a Mr. 
Wallace left 250,000 to the British and Indian Treasuries, unless 
his son should secure a title and thus require a more liberal pro- 
vision than had been made for him. The bequest was subject to 
a lawsuit but was eventually upheld. 

* In the two months in question, 118 estates over 50,000 were 
mentioned, and the list may be taken as very nearly complete 



Estimated Proportion of Estate Nr,im>wr nf T?tfltA 

bequeathed to Charities and ! 
Employees, etc. 

Nil and under 1% ; 75 

Over 1% and under 5% 22 

Over 5% and under 10% ! 6 

Over 10% and under 20% none 

Over 20% and under 50% ; 4 

Over 50% and under 100% , 8 

All 115 

It will be noticed that in the case of five-sixths of those 
leaving over 50,000, bequests of a charitable nature amounted 
to less than 5 per cent, of their property. As would naturally 
be expected, nearly all the proportionately large bequests were 
left by those with no family to consider. But I should add 
that the majority of these bequests, in, say, the over 20 per cent, 
class, were in the form of reversions, which will become the 
possession of the philanthropic legatees after certain life- 

(though settled property is excluded). Of the 118, ninety-four re- 
ceived detailed notices in The Times, twenty-four only being rele- 
gated to the list of " other wills " in small type. In fifty-one cases, 
no bequests to charities or employees were mentioned, and it may 
be assumed that either there were none or that they were negligible 
in amount. In the other sixty-seven cases where bequests of a 
charitable nature were mentioned, The Times office states that such 
bequests are given in full. In three cases, it was not possible from 
the details of the bequests as published to make any sort of esti- 
mate as to the amount bequeathed to charities. In other cases, it 
was often impossible to make more than a very rough estimate of 
the value of bequests, which are often in the form of annuities, and 
sometimes in the form of a year's wages to employees, whose wages 
and number are not known. Throughout I took ten years' pur- 
chase of annuities. In the case of reversions and where the 
greater part of an estate is bequeathed to charity, it is usually as a 
reversion after death of those with a life interest I have taken into 
account the full ultimate value of the bequest not its present dis- 
counted value, which cannot be properly estimated in reckoning 
the proportions given in the above table. 



interests in the will, enjoyed by relatives, have ceased. I have 
counted in the value of those reversions as though they were 
bequeathed for immediate possession. Their actual value is, 
of course, much less; so that I have over-estimated the pro- 
portions in certain cases. 

The gross capital value of the 115 estates in question was ap- 
proximately 16,391,000. A rough estimate of the total value 
of the bequests to employees and philanthropic bodies taking 
the immediate possession value of reversions is about 
1,330,000 or 8-1 per cent, of the total. But reversions make 
up a very large proportion of this sum (about 895,000 or two- 
thirds), and the present value of the bequests would form a 
very much smaller percentage of the total capital value of the 
estates. On the hypothesis that, in the case of reversions, the 
preceding life interests cease in a little under thirty years, the 
present value of all the bequests would be little more than 
half the above-mentioned figure, and the proportion would be 
about 4 per cent, instead of 8 per cent. 1 

It is interesting to notice that the proportion bequeathed to 
individual employees and domestics is, on the average, very 
much smaller than that left to institutions. Bequests of the 
former kind formed less than one-half per cent, of the total 
value of the estates. 

These results are not, of course, thoroughly dependable. 
The Times lists of Wills and Bequests are not published with 
an eye to quantitative analysis. There may be omissions in 
the published information, 2 and my assessments of the value 
of certain bequests may in some cases be far from correct. 
But the Legacy and Succession Duty statistics point to the 
same general conclusion, that, in Britain, bequests of a chari- 
table nature do not, as a rule, reduce appreciably, or, at least, 

1 The present value of a reversion of 100 after twenty-eight 
years with the rate of interest at 5% (rate of discount at 4-76%) 
is about 25. The present value of reversions totalling 895,000 
is, on the above hypothesis, about 223,000; and the total present 
value of all bequests becomes 656,000 (4%) instead of 1,328,000. 

3 Though, see footnote 3 to p. 104. 



anything like so much as taxation, the amount available for 
the dead man's family. 

3. The proportion of the total property paying Legacy 
and Succession Duties, bequeathed to persons and institutions 
outside the family or to very distant relatives, has not altered 
greatly for many years, and averages a little over one-tenth 
(10 to 11 per cent.). This figure is, however, misleading; 
for about half the value of the total estates passing each year 
is exempt from these two Duties, and the exemption limits are 
much higher for property passing to near relatives than for 
bequests to strangers. The actual proportion of the total 
formed by the latter is therefore considerably less than 10 per 
cent., and, in the case of all estates over 1,000, may be esti- 
mated at between 6 per cent, to 7 per cent. This figure covers 
any bequests to wealthy friends outside the family as well as 
those to poor dependants and charities. The proportion does 
not appear to be appreciably different, as between the pre- 
war and post-war years. 1 The great increase in taxation in 

1 Practically all bequests to strangers and distant relatives (be- 
yond the fourth degree), made out of estates exceeding 1,000 in 
value unsettled, are subject to Legacy and Succession Duty at the 
maximum rate (see summary of provisions in 65th Rept. of Inland 
Revenue Commissioners, pp. 45-8). Bequests of articles of artistic 
and historic interest, etc., are exempted, but the value of such ob- 
jects exempted in 1925-6 amounted to little more than half a mil- 
lion . Inheritances and bequests taxed for Legacy and Succession 
Duty in any year are not necessarily in respect of estates passing in 
the same year, for the former duties generally become payable 
when the beneficiary becomes entitled to the enjoyment of his in- 
heritance. Thus reversions, etc., may come into the Succession or 
Legacy Duty figures in respect of estates passing many years before. 
Nevertheless, for the purpose of making an estimate of the approxi- 
mate proportion of estates bequeathed to strangers, the Legacy and 
Succession Duty figures for such bequests may be compared with 
the total value of estates in excess of 1,000 for a series of years, 
and an average struck, especially as the proportion does not change 
much from year to year. But the latter total ought to be reduced 
by an amount equal to, say, one-fifth or one-quarter of the estates 
in the 1-5,000 class, in order to allow for the exclusion of estates 
of which the unsettled portion alone does not exceed 1,000. The 



recent years has apparently had little effect in checking the 
proportion of philanthropic bequests, though several testators 
refer to it as a deterrent. Differences in temperament, and 

following table gives a comparison on these lines for certain pre- 
war and post-war years. 







i Estimate of 

Capital passing 
to Strangers 

Col. 3 


, passing in 

! Estates in 

and Distant 

% of Total 

excess of 

1 excess of 


in Col. 2. 

; 1,000 net. 


Subject to 


L. & S. Duties. 


: mills. 














i 275-29 




3 years 














I ion ' 




Average of ; 
4 years 
1922-5 i 




Note that the figures in columns 3 and 4 include bequests to 
strangers of same social status as testator, and are not confined to 
charitable bequests. 

On grounds suggested by general reasoning as regards ability to 
pay, one would expect to find that on the whole philanthropic be- 



the existence or absence of family dependants are obviously 
much more important factors. 

4. If in Britain the proportion of dead men's wealth be- 
queathed to charities and poor dependants is small, it might 
perhaps be expected that in other European countries it would 
be even smaller. For, as we have seen, the law of legitim 
restricts philanthropic as well as spiteful impulses in the in- 
terests of the next of kin. However large the fortune of the 
married citizen who observes the Code Napoleon, only a fixed 

quests form a larger proportion of large than of moderate and small 
estates. The official figures give no guidance on the subject at 
present. It will be remembered that in the case of The Times 
sample of 115 estates of over 50,000, the proportion reckoning 
reversions at their full ultimate value was about 8%. In the case 
of forty-seven estates over 100,000 in the same sample the pro- 
portion was about 8-6%. These figures taken in conjunction with 
the estimate of something less than 6% for all estates over 1,000 
indicate that the proportion is, on the whole, " progressive." But 
the two sets of figures are not comparable in this way, in view of 
the difficulty introduced by the question of reversions, the rough 
nature of the estimates in the case of The Times sample, and the 
considerable margin of error involved in the latter case. As re- 
gards the last factor, it may be mentioned that if 8% be assumed 
to be the correct proportion in the case of the particular sample 
chosen, the percentage for all estates over 50,000 is likely to lie 
between 6% and 10%, since the "probable error" is 2% either 
way (and between 2% and 6%, if reversions are discounted thirty 
years ahead). 

As regards reversions, these will usually appear at their full value 
in the Legacy Duty figures when they revert', but, in reckoning the 
proportion in the case of The Times sample, they are put in at their 
full nominal value, when they are bequeathed. If the aggregate 
value of estates remained fairly stationary from year to year, and 
the proportion bequeathed to strangers by way of reversions after 
a life interest were constant, this discrepancy should make no differ- 
ence to the comparability of the two sets of figures. But since some 
of the reversions coming into the post-war Legacy Duty figures will 
be in respect of estates passing before the War at a lower level of 
prices, the percentage in respect of these figures will naturally come 
out lower than if reckoned on the same basis as in the case of The 
Times sample. This consideration must also be taken into account, 
when comparing the post-war with the pre-war percentage. 



proportion of his property is at his free disposal, and there 
is a legal limit to the extent to which voluntary bequests for 
public and charitable purposes can modify the inequality of 
inheritances. It must be remembered, however, that those 
who have no descendants and are, therefore, most likely to 
consider the claims of charity, have the major portion of their 
property at their free disposal. In the large majority of cases 
there is probably no desire to overstep the legal limit. 

The French official figures, which show the disposition of 
inheritances and bequests, as well as donations during life, 
among different classes of relatives and strangers are instruc- 
tive on this point. Officially, all French estates in excess of 
one franc come within the purview of the taxing authorities. 
Actually there must be a considerable amount of evasion which 
would affect the totals but would hardly materially alter the 
proportions passing within and outside the family. The figures 
for 1912 and 1913 are as follows x : 

The proportion bequeathed away from the family, about 
5 per cent, in each of the two years, is little less than the 
British figure of about 6i per cent. But the proportion be- 
queathed to public and charitable institutions Qess than 1 per 
cent.) seems to be very much less than in Britain, if one may 
judge from my estimates in connection with estates of over 
50,000. a Since, however, the total proportion going to 
strangers is little less than hi England, the smaller proportion 
of bequests to philanthropic bodies must be ascribed to differ- 
ences in custom rather than to the legal restriction of the 

5. Gifts to charities during life do not come into con- 
sideration here. But it is very probable that, in Britain, they 
are more extensive than bequests at death. For it is well 
known that many wealthy people spend each year a consider- 

1 See Annuaire Statistique, 1913, p. 208, and 1914-15, p. 267. 

2 In the case of The Times sample, the proportion bequeathed 
to institutions was reckoned at about 7% (counting reversions at 
full nominal value), and about 3%% counting value of reversions as 
discounted thirty years ahead. 

' 110 


Children, Grandchildren, 
Parents, Grandparents, 
etc. . 

To Spouses . 

Brothers, Sisters, and other 
Collateral Relatives 


Inter vivos. 




25 fr. 

= *) 

1912 1913 








































TOTAL within Family 

Private Individuals not 

Public and Charitable 

Bodies, Educational 

Institutions, etc. 

TOTAL outside Family 

Proportion passing outside 

Including Proportion to 

Charities, etc. 

able proportion of their income in this way. If one is going 
to be philanthropic it is naturally more pleasant to give while 
one is alive to enjoy the direct and indirect results of one's 

It is almost certain, though no official figures on the subject 
have come to the writer's notice, that in the United States a 
much larger proportion of rich men's wealth is given during 
Lifetime and bequeathed at death to philant 
than in our own country or in Europe, 
opinion that " private munificence movg 
public duty has never been shown 
American plutocracy working in a 
But Irving Fisher, writing with 



siders that large philanthropic bequests are now becoming 
less common. 1 There seem to be two important traits in the 
character of American life which have stimulated the philan- 
thropy of rich men, and have given it an economic importance 
which it does not possess in Europe. In the first place, there 
is in America a general belief in the opportunities available 
for hard work and enterprise to win large fortunes and in- 
deed such opportunities are more evident than in our own 
country so that the acquisition of " self-made " wealth is held 
in higher esteem than the enjoyment of a large inheritance. 
The wish of the British " self-made " man to turn his sons 
into gentlemen of leisure, and the contempt for " trade " which 
is still in evidence among the British aristocracy, are not under- 
stood on the other side of the Atlantic. Hence the desire to 
leave a fortune to one's descendants, which shall place them 
for ever or for as long as possible outside the reach of eco- 
nomic cares, is not so intense in America. 

In the second place, it is well known that in America there 
is a much greater dependence on voluntary contributions, 
rather than on taxation, for the relief of poverty and for other 
social purposes. It is very doubtful if taxation added to volun- 
tary gifts and bequests forms as large a proportion of the rich 
American's as of the rich Englishman's wealth. It is not our 
concern here to decide between the merits of the voluntary 
and compulsory methods of raising social funds. But it has 
been obvious, at least since the days of the Tudors, that, from 
the fiscal point of view, taxation is a more satisfactory ex- 
pedient than exhortations to private beneficence. It is also 
certain that it is likely to be a more efficient method of reducing 
inequality than the encouragement of philanthropic bequests. 
But with the comparative utility to mankind of voluntary gifts 
intended for the increase of health, knowledge, and happiness, 
and public expenditure out of taxation with the same end in 
view, I am not here concerned. 

1 See Dalton, op. cit. t p. 304. 

.'"':'_* 112 


CHAPTER IV (continued) 


1. IF we suppose that all the property left by parents is 
divided equally among their children, it is obvious that the 
amount inherited by each child would depend on two things 
the amount of property possessed by both father and mother 
together, and the size of the family. Differences in the for- 
tunes of wives, in the first instance, and in the number of 
children which they bear, in the second, constantly modify 
the general rule that the richer the father the larger the in- 
heritance of the son. Even if the second variable were a con- 
stant, a table of distribution, in which the estates of mothers 
and fathers are treated as separate items, 1 would not enable 
an accurate forecast to be made of the order of distribution of 
inheritances among the children. As the amount of property 
in the hands of women increases, the influence of marriage 
as a modifying factor becomes more considerable. In earlier 
times, when land was the chief form of property and the laws 
of succession favoured the male, it was the property in the 
hands of the fathers that chiefly counted, though that itself 
was partly determined by the fortunes of the families with 
which they were connected by marriage. But, in modern 
Britain, the property of the mothers can by no means be dis- 
missed as of small importance. About 30 per cent, of the 
private property in England is to-day owned by women. 

2. If most rich men married poor wives, and most rich 

women married poor husbands, the inheritances of the children 

in successive generations would tend to become much more 

evenly distributed. Unfortunately this result is not achieved, 

since it is a matter of common knowledge that most men marry 

women in the same social class. Nevertheless, differences 

between the social classes no longer correspond to differences 

of economic position and it is by no means generally true 

1 As in our Estate Duty statistics. 



that the richer men marry the richer women. To some ex- 
tent, therefore, marriage of the relatively poor with the rela- 
tively rich may cause the inheritances of the children to be 
more evenly distributed than the property of individual men 
and women in the previous generation. To the extent that 
this factor operates, there is a tendency for inequality in in- 
heritances to diminish with successive generations. 1 But the 
custom of Primogeniture and unequal division among the 
family, the effects of fresh accumulations and other variable 
factors may, of course, more than counterbalance this ten- 
dency, and seem, in fact, to have done so in the past. 

3. The size of family is the next variable to consider. We 
have already touched on the effect of an increasing population 
on the distribution of inheritances, under the law of legitim. 
It was shown that, if there is no fresh accumulation as popu- 
lation increases, then the amount of property per head must, 
of course, diminish, but the relative distribution of the total is 
not, for that reason, altered. 3 But since, in fact, we know 
that saving does take place to meet the needs of an increasing 
population, that conclusion itself does not lead us very far. 
It is probable, on theoretical grounds, and it appears to be true 
historically, that the more rapid the increase in population, 
the greater the saving per head and the more rapid the increase 
in the total capital. (Whether the former is the cause or the 
result of the latter need not concern us here.) Consequently, 
when families are large and population is increasing rapidly, 
the proportion of inherited to total wealth will usually be 
smaller, and the direct influence of inheritance less than when 
families are small and population is nearly or entirely station- 
ary. Hence one effect of the great decline in the birth-rate, 

1 One might here draw a close parallel between biological and 
economic inheritance. There is a tendency in families where there 
has been much intermarriage between the classes for successive 
descendants to revert more and more to the normal, as regards the 
possession of property. The growth of democratic manners and 
popular education is naturally likely to increase the force of that 

a See 1 of this chapter. 



which the present century has witnessed all over Europe, would 
have been had other things, such as the value of currencies, 
remained stable to increase the proportion and the import- 
ance of inherited wealth. 

But, even when both population and capital are increasing 
rapidly, the total influence of inheritance on distribution is not 
so greatly weakened by the sub-division of past wealth among 
increasing numbers of descendants, for it still retains a con- 
siderable indirect influence on the distribution of the fresh 

4. The relative size of rich and poor men's families has 
an obvious bearing on the distribution of inheritances. If 
great fortunes produced large families, and small families ac- 
companied small fortunes, it is evident that the inheritances 
of the children would be more evenly distributed than the 
property of their parents. In the extreme case, if the size of 
the family were exactly hi proportion to the property of the 
parents, and all estates were divided on the legitim principle, 
the inheritances of all the children of the different families 
would be precisely equal. It is, however, nearer the truth to 
suppose that men's families are in inverse proportion to their 
means. Poor men, on the whole, have larger families than 
rich men. The average upper middle-class family is only 
two-thirds of the size of the average working-class family. 1 

x See the Registrar-General's Report on Occupational Fertility in 
the Supplement to the Census of 1911, and also the Decennial Sup- 
plement on Occupational Mortality and Fertility in connection 
with the Census of 1921, also T. H. Stevenson, "The Fertility of 
Various Social Classes," etc., Stat. /., May, 1923. 

In Social Class I, which covers the professional and middle 
classes in 1911 (but is more closely confined to the "comfortable 
classes" in 1921 Census), the number of surviving children per 
hundred married couples was 21, as against a general average for 
all classes of 280. The difference in the case of those engaged in 
the more strictly " upper middle-class " occupations was even 
greater The families of professional men, of army officers, and 
of those living on private means, were only between 60% and 70% 
of the average in size. In round numbers, there were two children 
per upper middle-class couple, and three in the average working- 
class family. These averages apply to all married couples of what- 



Hence, in the absence of modifications introduced by mar- 
riage, fresh accumulations, and taxation, the distribution of 
property would be likely to become more and more unequal. 
Of course, there is no necessary reason why poor men's fami- 
lies should continue to be larger than rich men's, but so long 
as they are, this fact must, in some degree, aggravate the in- 
equality of inheritances and of wealth in general. 

CHAPTER IV (continued} 



1. APART from variations in laws and customs, the in- 
fluence of inheritance on the distribution of wealth depends 

ever age. The number of children likely to survive their parents 
who die within the present generation can be gauged better by the 
figures for children living in the case of couples married, say, thirty 
or forty years ago. The 1911 figures are as follows: 


Date of Marriage. 

Social Class 1. All Classes. 

1891-96 247 ' 328 

1886-91 286 378 

1881-86 , 325 ' 416 

The size of family in Social Class I is thus 78% of the general 
average for marriages in 1881-6, 76% for marriages in 1886-91, 
75% for marriages in 1891-6. 

Well-to-do parents dying to-day might thus be expected to leave 
on the average about three children to share their property, as 
against about four children in the case of working-class parents. 

The figures for fertility in the various social classes are neither 
so complete nor so reliable in the case of the 1921-3 returns (see 
Dec. : Supplement, Report, p. xcix). But they indicate at least as 
great a difference between the classes. The birth-rate, in the case of 
families where the father was under fifty-five years of age, was 70% 
of the general average in Social Class I, as against 73% in 1911. 
Note, however, that Social Class I was more closely confined to the 
" comfortable class " in the treatment of the 1921 figures than in 
the case of the 1911 figures. 



upon the economic conditions of the period or the country 
in question. 

In " new " countries, which have been settled at a com- 
paratively recent date, inherited wealth is likely to form a 
smaller proportion of the total property, and the influence 
of inheritance is consequently likely to be less than in the case 
of old-established countries. For the bulk of property 
owned by the inhabitants, exclusive of what may be mort- 
gaged to capitalists in the Old World, must have been freshly 
acquired by the enterprise and industry of relatively few 
generations of settlers. At the same time, in the history of 
most colonies, the settlers have not abandoned at any rate 
for long the inequalities of the Old World when they entered 
the New. Even at the outset, unequal inheritances acquired 
in the parent country have played their part in shaping the 
distribution of land and capital in the new country. But the 
chief reason why inherited wealth has less influence on dis- 
tribution in newly settled countries, and why wealth there is 
more evenly distributed, is that, although there are usually 
considerable inequalities in the division of the original capital 
possessed by the settlers, yet, owing to the more plentiful 
supply of cheap or free land, there are more equal and more 
abundant opportunities of acquiring fresh wealth both by in- 
dustry and speculation. In the first settlement of a country, 
native ability, industry, and luck play a more important 
though by no means the sole part in determining the dis- 
tribution of wealth. But later on, as large inheritances accu- 
mulate, and as the entire territory becomes private property, 
so that the opportunities for acquiring fresh wealth become 
less abundant and less open to all comers, contrasts in dis- 
tribution become greater and more permanent, assuming the 
hereditary character familiar to inhabitants of the Old World. 
Cannan quotes an American writer, H. R. Seager, as saying in 
1904: "So long as a fair degree of economic opportunity is 
preserved, the influences which make for the disintegration of 
large accumulations of wealth are likely to predominate, and 
the very rich of each generation are likely to be those who 



have acquired the greater part of their fortunes in their own 
lifetimes. This has been the case in the United States up to 
the present time. . . ." " But in his (Seager's) 1913 edition," 
says Cannan, " he decided to omit this passage. As the United 
States ceases to be a ' new ' country, more and more property 
will be inherited in proportion to that which is acquired in 
the lifetime of a generation, and there will consequently be 
more scope for inequality of inheritance . . . America may be 
free from inequalities arising from grants of land made by 
William the Conqueror, but it is just as easy to be the lucky 
inheritor of a farm which becomes part of the site of a great 
city there as in England. The Astor inheritance in America 
has the same source as the Grosvenor inheritance in England, 
and the Vanderbilt and the Morgan millions are no more likely 
to disintegrate than those of the Rothschilds." * 

It is, however, significant that, in America, notwithstanding 
its numerous millionaires, the relative inequality in the dis- 
tribution of wealth appears still to be appreciably less than in 
Britain, or than in France or Germany before the War. And 
the difference in the case of Australia, a still " newer " country, 
is very noticeable. 2 

2. Stability in prices, and in economic and social con- 
ditions generally, favours the influence of inheritance. Changes 
in the value of money have, historically, been the chief means 
by which hereditary barriers have been broken down and the 
social classes recast for example in the sixteenth century and 
during the last ten years. It is now well known that the depre- 
ciation of money enables the producer to rob the rentier and the 
debtor to cheat the creditor. It thus increases the rewards of 
risk and enterprise at the expense of those who attempt to 
preserve their accumulations for all time by placing them in 
" safe " investments at a fixed rate of interest, so that their 
heirs can draw the income without further trouble or the 
exercise of business intelligence. 

" Those secular changes," writes J. M. Keynes, " which in 

1 Cannan, Wealth, pp. 183-4. 
a See note at end of chapter. 



the past have depreciated money, assisted the new men and 
emancipated them from the dead hand; they benefited new 
wealth at the expense of old, and armed enterprise against 
accumulation. The tendency of money to depreciate has been 
in past times a weighty counterpoise against the cumulative 
results of compound interest and the inheritance of fortunes. 
... By this means each generation can disinherit in part its 
predecessors' heirs; and the project of founding a perpetual 
fortune must be disappointed in this way, unless the com- 
munity, with conscious deliberation, provides against it in some 
other way, more equitable and more expedient." 1 

The picture is vivid, but the argument is surely not entirely 
logical. Whether or not the depreciation of money enables a 
generation to disinherit in part its predecessors' heirs depends 
largely on the character of the heirs. It can scarcely do so if 
the heirs have as much business acumen and enterprise as 
their predecessors. Inherited fortunes are not necessarily left 
in old and depreciating forms of property, any more than 
new savings are necessarily put into new and appreciating 
forms of property. Nor, in the majority of cases, are in- 
heritances settled immutably in any particular forms of in- 
vestment. The heirs of large fortunes, that are not the subject 
of a trust or entail, are as much at liberty to select the most 
profitable investments as those who are making new accumu- 
lations. As regards settled estates, which are to-day less than 
one-fifth of the whole, the chief form of property which pre- 
decessors have endeavoured to "tie-up" is land 2 ; and land 

1 A Tract on Monetary Reform, p. 10. 

a After the Budget of 1914, all settled property left by those 
dying after August, 1914, of over 100 in value (except a settle- 
ment relating to husband and wife which has paid duty on the 
death of one of the spouses) is subject to Estate Duty each time it 
passes at death. The net capital value of settled property passing 
in Great Britain in 1925-6 was 80-28 millions out of a total capital 
value of all estates passing of 456-39 millions, or 17*6%. Settled 
Realty amounted to 26-53 millions (or 30-44 millions including 
leaseholds, and real estate directed by settlement to be sold) out of 
82-26 millions total realty the proportion being 32-3% (or 35*4% 
if leaseholds, etc., are included as realty). 



has been historically the one really safe investment, which 
does not depreciate as money depreciates. To-day, for 
example, an unprecedented depreciation of the currencies of 
Europe has left the peasant proprietor in control of the towns- 
man. And, in those countries where the fortunes of great 
landowners have been dispersed, it has been done by the con- 
scious deliberation of the community or by some forcible 
human act, not by the unconscious erosion of a depreciating 

Changes in values do not always operate against the in- 
heritor and in favour of the newcomer. In so far as the 
changes are not foreseen, they benefit and bankrupt both 
indifferently. Nevertheless, they do involve a partial redis- 
tribution of wealth; a redistribution which may leave the 
inequality of property as great as before, but is no longer so 
closely in accordance with that of individual inheritances. In 
other words, rapid changes in the value of money make both 
chance and intelligent risk-bearing more important factors in 
distribution, so that both inheritance and saving proper become 
relatively less important. In so far as it is possible to forecast 
changes in values, we have already seen that, other things 
being equal, the inheritor of a large estate is in a better position 
than the man of small means to exploit the instability of 
prices. 1 But it is probably often true that the heirs of large 
fortunes, being enabled to remove themselves from active 
business, lack of enterprise, the knowledge, or the intensity of 
purpose that enables the newcomer to derive advantage from 
shifting values, and thus acquiesce tamely in their own im- 



The following table illustrates the point. (There are no figures 

that I know of relating to the distribution of property in the U.S.A., 

so the figures for U.S.A. incomes are compared with those of 

Prussia and Australia, as an indication of the probable difference 

1 See page 86. 



in the matter of property also.) For reasons given below, atten- 
tion should only be paid to differences that are well marked. 


of Total Cumulative Percentages of Aggregate Value. 


1 2 

Richest j 

fraction of England, 
the People. ! 1911-13. 

% of Tola! 














A nstralia, 





DISTRIBUTION OF INCOMES (before Direct Taxation) 

of Total Cumulative Percentages of Aggregate 


Richest , 



fraction of , 

the People, j 
% of Total 1 




Number. ! 







5-0 j 



100 ; 

























The following notes on the sources and comparability of the 
different sets of figures are important. 


The total number of " persons " in the population, to which the 
numbers of property-owners in the various classes are related as 
percentages in this column, consists of all adult men and women 
over twenty-five years of age in the case of England and France 
where the taxable estates, but not the taxable incomes of married 
men and women are counted separately; and of all " hread-win- 



> ners " or occupied persons in the case of Prussia and Australia, the 
latter total being some 15 per cent, less than the total number of 
adults (male and female) over twenty-five years. Thus the per- 
centages of the total number of " persons " given in column 1 do 
not apply precisely to the same thing in the different countries. 
But the discrepancies likely to be caused on that account are prob- 
ably not great. 

In the case of Income Distribution, in all the four countries 
chosen, the total number of incomes seems to be approximately 
equivalent to the total number of persons occupied in " getting a 
living " (exclusive of married women not occupied in industry). I 
could wish writers on Income Statistics would make it quite clear 
when they do and when they do not count married women's in- 
comes as separate from their husbands', and would consider the 
discrepancy introduced (as, for example, in the British statistics), 
when married women's incomes in the taxable classes are lumped 
together with those of their husbands, and their earnings treated 
as separate in the non-taxable classes. (See also remarks in Appen- 
dix to Chapter I.) 



For sources of these figures, see Appendix to Chapter I, p. 64, 
which points out inter alia that the figures in columns 10 and 11 
are not comparable inter se. 


The source is Helfferich: Deutschlands Volkwohlstand, 1888- 
1913 (1915 Edition), which gives figures based on the Prussian In- 
come Tax returns, including an estimate of the number of family 
dependants represented in the various classes. In view of the fact 
that income evading taxation is put at not less than 10% of the 
taxable total, inequality of distribution is probably understated. 


The source is Prussian Property Tax returns for 1908, quoted by 
King Wealth and Income of the U.S.A. who gives his own esti- 
mate of the aggregate value of the small estates (under 300) not 
liable to tax. In making my comparison I adopt the latter, but 
compare the 'numbers in each class with the total " occupied " 
population (about 15 millions) which King apparently does not. 
These figures are still more unsatisfactory than those for incomes; 
Helfferich puts evasion of Property Tax at 20% of the taxable total 
(in 1912). 

The only figures available are those of estates passing at death, 
previously discussed in note to Section 1, Chapter IV. In view of 



the difference in age-distribution between living and dying property- 
owners, some unknown correction has to be made in applying the 
succession percentages to the living. In the absence of any better 
method, I have compared the figures of the distribution of estates 
among the living and among the dying in England, 1912 and 1924; 
in this case, the percentages of the total property left by sections 
of the dying are about 2% less than in the case of the living for the 
richest 0-1% and 1% of the people, and 2% to 3% more for the 
richest 5% and 10% of the people. I have therefore made the 
correction to the French Succession figures suggested by this com- 
parison and, though it is quite clear that the nature of the correc- 
tion which should be made is different in the two cases, 
nevertheless the error in the proportions is not likely to be great 
on this account. But, on account of extensive gifts and evasion, 
the figures are probably little more reliable than the Prussian, 
which they so closely resemble. 


The source is Knibbs (Commonwealth Statistician), who gets his 
figures from the War Census 1915 returns. These figures are prob- 
ably about on a par with those for Britain as regards reliability, 
though the War Census method was likely to cause some under- 
statement as regards the actual totals. 


Knibbs' figures for Income distribution in 1914-15 are not very 
suitable for our purpose, owing to the inclusion of about 14% of 
the population as having no income or a deficit; this section was 
composed largely of farmers who had made a loss in the year in 
question. The figures given for 1920-1 by J. T. Sutcliffe (The 
National Dividend, published Melbourne, 1926) are used here. 


The source is the National Bureau of Economic Research (Income 
in the U.S.A., 1909-19, Vol. I). Very full tables of distribution 
have been worked out by this body, and the totals checked by in- 
dependent methods. Unfortunately they do not deal with the dis- 
tribution of property. 

In dealing with the figures given in the above table, it should be 
remembered that, generally speaking, the distribution statistics for 
Britain (with the exception of those for Incomes hi 1919), Australia, 
and the U.S.A. are much more accurate and reliable than those for 
France and Prussia. The difference in the distribution of property 
and incomes as between Britain and Australia is certainly both real 
and important, as is also that between Britain and the U.S.A.; and 
it may be remarked that in the U.S.A. and in Australia, capital and 
income per head of the population are greater than in Britain. 




1 . IN the last chapter we discussed the various circumstances, 
legal, social, and economic, which affect the influence of in- 
heritance on the distribution of wealth. In this and the next 
chapter, we are concerned with how to test the extent of that 
influence in Britain in the present century. For this purpose, 
there are two main questions which seem to require an answer : 
(1) What proportion of the aggregate of individual property 
has been acquired by inheritance, and what by fresh accumu- 
lation? (2) Do the larger properties belong, on the whole, to 
those who received the larger inheritances? 

2. The first question is considered in the present chapter. 
It raises some fundamental questions of definition which can- 
not be passed over. If, for example, we consider the property 
of the members of a community, at any given time, as consist- 
ing of the definite collection of particular objects possessed 
by them, in existence at the time in question, then, by defini- 
tion, only those objects which were actually created in previous 
generations can constitute their inherited property. The latter 
would therefore be confined to the land itself, and to the more 
durable buildings and plant, minus, of course, any new brick- 
work and paint, and new parts supplied by members of the 
living generation. 

But if we adopt this definition of the nation's inherited 
capital, then we must revise our conception of the " national 
income," so as to include one of the costs of producing it, 
namely, the expenditure on repairs and renewals necessary to 
maintain in serviceable condition the previously existing stock 
of material equipment; and we must consider this expense as 
forming part of the " National Savings." l In order to be con- 

1 Cf. Bowley, "Definition of the National Income," Econ. 
Journal, March, 1922. 



sistent, we should then have to consider the income on 10,000 
worth of property (when the rate of interest was 5 per cent.), 
not as 500 a year, but as some much larger amount which 
would include the cost of repairs and depreciation. One may 
admit that, in many cases, the ordinary citizen would include in 
his conception of his " savings " any sums put by to meet the 
depreciation of personal domestic possessions, such as furni- 
ture or private motor-cars. But this is largely because the in- 
come of enjoyment derived from such possessions does not 
form part of his money income; if he hired out his motor-car, 
for example, he would certainly reckon an allowance for de- 
preciation as one of the costs which must be met by the hirer. 
Nevertheless, when any household goods which he inherited 
wear out and have to be replaced, he would probably consider 
that the new goods bought in their stead were acquired by sav- 
ing and not by inheritance, because the replacement was the 
result of conscious thrift on his part. But, in a modern indus- 
trial community, the great bulk of private property is held in 
the form of investments in corporate concerns, which would go 
bankrupt if they did not reckon depreciation as part of their 
costs and deduct an allowance for it before distributing their 
profits. As regards the greater part of the nation's capital 
goods, provision for their maintenance and repair is not the re- 
sult of conscious thrift on the part of the individual owners of 
property rights in them. 1 For this reason, the above definition 
of the nation's inherited property that it consists only of those 
particular objects which were created in past generations is 
thoroughly misleading in its implications, and irrelevant for 
our purpose. It bears no clear relation to the aggregate of in- 
dividual inheritances. By no reasonable use of language, for 

1 In 1925-6, 67-7% of the gross value of estates subject to Death 
Duties in Great Britain, was accounted for by Government and 
Municipal securities, stocks and shares, bank deposits, mortgages, 
ground rents. If one excludes War Loans as not representing con- 
crete capital, the proportion is 62i%. House property (including 
business premises), household goods, and stock-in-trade (of busi- 
nesses other than Joint Stock Companies) accounted for little more 
than one-fifth (20-81%). (See 69th Rept. I.R., Table 18.) 



example, can it be said that the inheritance of shares in & firm 
ceases to be inherited property, when the firm's original equip- 
ment has been worn out and replaced by new equipment. The 
shares do not represent the possession of any particular con- 
crete goods, but a right to a portion of the firm's profits, and 
those profits are computed after making an allowance for de- 

If we want to divide the " National Capital " in the sense of 
the useful material objects owned individually and collectively 
by the nation's citizens * into two parts, namely that acquired 
by inheritance, and that due to fresh accumulation, then it 
seems proper to adopt the following definitions : 

(1) That the part due to fresh accumulation or " Saving " 
consists of the net additions made by the living to their stock of 
Capital goods. 

(2) That such net additions are exclusive of repairs and re- 
placement of goods in the previous stock which have become 
worn out or obsolete 2 ; as these repairs and replacements are a 
cost of production and not " saving " proper; and 

(3) That the previous stock maintained and replenished in 
this way (i.e. the remainder) constitutes the nation's Inherited 

A rough estimate, on these lines, of the inherited portion of 
the National Capital before the War is attempted below. But 

1 The nation's capital wealth " may mean either the value of the 
objects found within its boundaries or the wealth of the inhabitants, 
including their foreign possessions and excluding wealth within the 
country held by people abroad." It is in the latter sense that the 
term is used here. (Stamp, Wealth and Taxable Capacity, p. 7.) 

a There is no doubt that, according to the accountants, provision 
against the " normal risks of obsolescence " ought to be reckoned 
as one of the costs of production. " Obsolescence," however, is ob- 
viously a relative term, which can be interpreted in a very wide 
sense, if we choose. The adequacy or inadequacy of Income Tax 
allowances for depreciation (including obsolescence) is discussed in 
British Incomes and Property, pp. 179, 194, etc. In so far as they 
are inadequate, Companies' Savings in the strict sense will be 
somewhat less than their assessed Undistributed Profits. (See also 
note 3 to p. 48 above.) 



it is important to realise bef orehapd what such an estimate does 
and does not signify. 

3. The proportion which the Nation's Inherited property 
(as above defined) bears to its total capital is not the same thing 
as the average proportion derived from inheritance in the ag- 
gregate of individual cases. In the first place, a considerable 
part of the property of one generation may pass to the next by 
gift during life rather than by bequest and inheritance. For 
the purpose of this chapter, however, we may treat gifts and in- 
heritances as coming in the same general category, since our 
present object is to find how much of our property is due to the 
accumulations of the living and how much to the accumula- 
tions of the dead. But, in the second place, the net additions 
to the community's capital made by the living are a different 
and a smaller total than the aggregate of individual savings. 
For the net savings of the community are made up of the ag- 
gregate balances of income over consumption, minus the aggre- 
gate balances of consumption over income; but the latter do 
not figure as a deduction in computing the aggregate of in- 
dividual savings. A certain part of individuals' accumulations 
does not represent any addition to the capital stock of the com- 
munity, but is merely absorbed in financing the consumption of 
Governments and individuals who live beyond their incomes. 
Investments in War Loan are an obvious example; and in the 
same category are loans to individuals used for current con- 
sumption. To the extent that some individuals indulge in de- 
cumulation of their property, they must do so by drawing on 
the fresh accumulation of others. For the world as a whole 
cannot consume more than its own income. 1 

The importance of this distinction between aggregate and net 
saving in its bearing on the subject of this chapter can be illus- 
trated by an example. Let us suppose that the community is 
divided into three classes, each of which has inherited a total 
capital of 3,000 millions. The first class saves 200 millions a 
year, the second class lives just up to its .income and saves 

1 Except in so far as it does not provide for the maintenance of 
its existing equipment, and this reduces its future income. 



nothing, and the third class consumes mord than Its income to 
the extent of 100 millions a year. At the end of thirty years, 
assuming capital values to be stable, those in the first class 
would own 9,000 millions, those in the second class would still 
own 3,000 millions, and those in the third class would own 
nothing. The total capital of the community would then be 
12,000 millions, the net additions to the original inherited 
capital being 3,000 millions or one-quarter of the former sum, 
and the ratio of the inherited to the total capital would be 
three-quarters. But the aggregate savings of the community 
made exclusively by the first class have amounted to 6,000 mil- 
lions or two-thirds of the property of that class, while the whole 
of the property of the second class was inherited, and the third 
class has entirely squandered its inheritance. The average pro- 
portion of individual properties acquired by inheritance would 
thus be, not three-quarters, but only one-half. It is clearly pos- 
sible, therefore, that, even if no increase in the community's 
capital took place during the lifetime of one generation, yet 
the property of many individual members might have been ac- 
quired largely by their own savings, which had been used in 
purchasing the inheritances lost by the original inheritors. 

Thus, in assessing the direct influence of inheritance on the 
distribution of property (apart from its indirect influence on 
incomes and saving), what we really require to know is not so 
much the relative proportions of the national capital represent- 
ing respectively the additions made by the living, and property 
received from the dead, as the ratio of the aggregate of in- 
dividual savings to the aggregate of individual property. It is 
the latter ratio also which would need to be considered by the 
administrator, if and when it is decided to attempt to differen- 
tiate in taxation between " inherited " and " saved " wealth. 
But, hi this case, it must be remembered that the aggregate of 
individual savings plus the aggregate of individual inheritances 
received does not equal the aggregate of individual property, 
but would always make up a somewhat larger total. 

4. In practice, any attempt to estimate directly the aggre- 
gate savings of a generation is likely to be unconvincing. There 



are, indeed, estimates of the " National Savings " both for pre- 
war and post-war years, which are frequently quoted in con- 
venient contexts. But the two most careful estimates namely, 
that obtained for 1907 from Census of Production Data and 
that given by Mr. Coates for 1924 appear to relate neither to 
the aggregate savings of individuals nor exclusively to net addi- 
tions to the nation's capital, in the sense we haye defined them, 
but to some quantity in between the two. 1 Again the estimates 

1 According to the estimate in the Census of Production Report 
for the year 1907, in that year 170 to 190 millions represented 
additions to capital goods within the United Kingdom (including 
new houses, etc., as well as Government expenditure on capital 
works estimated at 12 millions). The increase in personal domestic 
property (such as furniture, motor-cars, etc.) seems to have been 
put at 50 millions or so, though there were apparently very little 
data for this estimate. Foreign investments, including income 
accrued abroad, are put at 100 millions. The resulting total is 
320-40, or say 330 millions, or about 17% of the total estimated 
income in the year in question. This 330 millions was exclusive 
of sums for capital maintenance and repair, but apparently included 
a certain unknown amount of new investment which went to re- 
place obsolete capital, and was thus, according to our definition, 
not strictly " saving," but part of the cost of depreciation. But it 
does not include loans for consumption purposes, which ought to 
figure in the aggregate of individual savings. On the other hand, 
some part of these savings will be wasted in unprofitable invest- 
ments that add neither to the investor's property nor to the com- 
munity's capital. Another part will appreciate in value, but in so 
far as this appreciation is due to the piling up of company reserves, 
it is already counted in as " corporate savings." 

In order, therefore, to arrive at an estimate of the aggregate of 
private accumulations in 1907, we should have to add to the Census 
figure of Savings (i) an estimate of loans for consumption purposes, 
and deduct (ii) any replacements of previous capital stock included 
in the Census figure, as well as (iii) an allowance for wasted new 
investments, which are in effect merely unwise spending. (See 
Stamp, British Incomes, etc., pp. 181-203, where estimates of wasted 
investments, etc., are quoted and criticised. I agree with the author 
that the loss of capital values in respect of old investments cannot 
be fairly deducted from the total of fresh accumulations except in 
so far as they are due to inadequate allowance for the depreciation 
of material equipment. On the other hand, in that case, an in- 
crease in the capital value of old investments, when it is not due to- 
E 129 


relate to isolated years, and one is not entitled to assume that 
the community saves the same proportion of its income from 
one year to another, even in pre-war times. Probably, for ex- 
ample, it saves a larger proportion when the income is more 

The most satisfactory method of attempting to compute the 
total net savings of a generation (as distinct from the aggregate 
of private accumulations) seems to be to compare valuations of 
the National Capital at the beginning and end of a period re- 
presenting the duration of a generation. On the assumption 
which is examined later that we can allow for changes in 
capital values so as to obtain a stable measure of changes in 
amount, the difference between the totals at the beginning and 
end of the period represents the total net savings (as defined 

corporate saving by the concerns in question, ought not to figure as 
fresh accumulation. In any case, capital losses in respect of fresh 
investments ought to be deducted from the aggregate of savings 
over a period.) 

(i), (ii), and (iii) above are unknown quantities. But if we care to 
assume that (i) cancels (ii) and (iii), and further that about the same 
proportion of the national income was saved each year during the 
generation which preceded the War then the aggregate savings 
accumulated by individuals during that generation would be about 
7,000 to 8,000 millions. (I take the duration of the generation as 
from 1885 to 1912, and an average national income during the 
period of 1,700 to 1,760 millions.) This aggregate is equal to 
between 50% and 60% of the total private property of the people of 
the United Kingdom at the end of that generation. On the same 
hypothesis, the average proportion of private estates in 1914 
acquired by inheritance and gift from their owners' predecessors 
would be round about 40% to 50%. Obviously no particular im- 
portance can be attached to such an estimate, but it may be useful 
for comparison with the estimate of the proportion of the National 
Capital derived from past generations given on pages 137-8 below. 
It is interesting to notice that settled property, which must in the 
main be received by way of gift or inheritance, formed about 18% 
of the value of estates over 100 in 1925-6 (see 69th Rept. of I.R., 
p. 33), and since most settled personalty is in fixed-interest securities 
which depreciated relatively to other property in the War inflation 
period, the proportion was probably higher before the War. 
(N.B. The Estate Duty figures before the War do not include all 
settled property.) 



above), and the earlier total the inherited capital of the genera- 
tion in question. 

The first problem is to determine the " length of a genera- 
tion." The phrase is a vague one; but clearly the period re- 
quired here is the average interval between the time at which 
people inherit and the time of their death, taking the average 
of units of property rather than the average of persons. In 
other words, we have to determine the " devolution " or " suc- 
cession interval." That period can be estimated in various 
ways, and, for the pre-war generation of property owners, may 
be put at about twenty-eight years. 1 

1 The calculation and significance of the Estate Duty " multiplier " 
is discussed in the Appendix to Chapter 1 (see p. 73). If there were 
no gifts inter vivos, and all property passed by inheritance at death, 
the " multiplier " would represent the number of years during which 
a unit of property remains in the hands of the living. Owing to the 
practice of gifts inter vivos the " multiplier " is higher than it would 
otherwise be exactly how much higher it is impossible to say with 
certainty, without knowing the total amount of gifts and the ages 
of the persons who give and receive them. The " multiplier " was 
calculated at about 30 for 1911-13, and somewhat less for 1905-6 
(see Mallet and Strutt, S.7., July, 1915). It may be noted that when 
the death-rate is declining as it was in the period 1870-1914 the 
gradually increasing length of life tends to increase the period of 
survivorship of children over parents. Hence the " succession in- 
terval " for the generation before the War may be put at not more 
than thirty years, and in view of the effects of gifts inter vivos on 
the " multiplier " probably not more than 28 years. 

In the case of the sample of eighty estates of over 200,000, left by 
men dying in 1924-5, 1 found that the average interval between the 
years in which they received their chief inheritance, and their death, 
was 33 years. But the average, when weighted roughly according 
to the amount of property inherited, sank to 25 years. The median 
interval was 29 years. 

In the case of another sample of ninety estates of between 10,000 
(net personalty) and 200,000, the average interval (unweighted) was 
32i years, the weighted average was 32 years, and the median was 
30 years. (These samples are dealt with in the next chapter.) In 
the case of these samples, the interval taken was, in the majority 
of cases, that between the father's death and the son's death. If 
collateral inheritances had been taken into account the average 
interval would certainly have been shortened considerably. 



Hence, we may choose the period from 1885 to 1912 as re- 
presenting the length of a generation. It is, in fact, a most 
convenient period, both because we have authoritative esti- 
mates of the National Capital at the beginning and end of it, 
and because the price-level and the rate of interest were not 
markedly different in 1885 and 1912. 

The next problem to be faced is whether it is indeed possible 
to estimate the change in the amount of the capital during that 
period, from a comparison of valuations at the beginning and 
end of the period. In a recent pamphlet dealing with changes 
in the National Income from 1880 to 1913, Professor Bowley 
writes : " It is not possible to measure the amount of capital 
apart from its value, and its value can only be estimated from 
its earning power; consequently we cannot estimate the change 
in the quantity of capital in the thirty-three years (1880-1913)." 

That conclusion I cannot accept as the last word on the sub- 
ject, though his warning is certainly useful as a corrective to 
unquestioning use of estimates of the National Capital at dif- 
ferent periods, and as a stimulus to careful thought. A full 
discussion of the subject is beyond our scope here, but the 
following observations will not be out of place. 

The monetary value of a given collection of capital goods is 
certainly computed by estimating the money value of the in- 
come derived or expected from them and multiplying this by 
the reciprocal of the current rate of interest. Thus the value of 
a given capital depends on (a) the amount of income derived 
from it, (b) the money value of the goods and services of which 
that income consists, and (c) the rate of interest. 

If, then, the valuation of the national capital is found to in- 
crease between two dates by, say, 5,000 millions, that increase 
may be largely or entirely due, not to the creation of fresh 
capital, but to an increase in (a) or (b), or to a decline in (c); or 
conversely the increase in amount may be much greater than 
appears, owing to a decrease in (a) or (b) or to an increase in 
(c). The problem is, then, how to ascertain what variations 
have taken place in our three variables, and how to correct the 
valuations in order to allow for them. 



We can ascertain changes in two of the variables, namely, 
changes in the value of money, and in the rate of interest; and, 
if there were no question of change in the amount of income 
derived from a given collection of property we could ascertain 
what addition had been made to it over a given period by 
reducing the valuation of the total at the latter end in pro- 
portion to an increase in the price level, and increasing it 
in proportion to any increase in the rate of interest, and 
vice versa. 

Changes in the " earning capacity " of capital goods as a 
whole, which may conceivably occur apart from changes in 
the value of money, offer a more difficult problem. An in- 
crease or decrease in the amount of income derived from a unit 
of fresh capital is registered by a rise or fall in the rate of in- 
terest. But, it may be argued that the earning power of old 
accumulations has no necessary connection with the earning 
power of new accumulations. For changes in conditions of de- 
mand and methods of production might make our present 
capital goods much less or much more valuable in course of 
time, quite independently of changes in the general price level 
or in the rate of interest; so that, apart from a complete inven- 
tory of all the items at the two different rates, there is no 
method of computing the extent of the additions to the capital 
stock. The argument has force in abnormal times when 
economic changes are rapid and far-reaching, such as the 
period of the Great War. But in more normal times, when 
changes in technique and conditions of demand are more 
gradual, it is possible for industries and individual owners of 
property to adapt their equipment and forms of investment to 
those changes without loss; and the depreciation funds, which 
are one of the recognised costs of organised business and which 
should not figure as " saving," make allowance for what may 
be called the normal risks of obsolescence. 1 

An examination of the course of broad classes of investment 
values shows that by far the most important factors, which dis- 
turb the value of capital goods as a whole, are changes in the 
1 See p. 126 above, and note 2 on that page. 


value of money and in the rate of interest 1 Giffen seems to 
have thought that only changes in the price level should be 

1 A comparison of the course of commodity prices, the reciprocal 
of the rate of interest, and the prices of different classes of invest- 
ments yields interesting results. The British and Foreign Colonial 
Corporation have published for some years a series of investment 
index figures distinguishing "Gilt-edged Stock/' "Fixed-interest 
Investments " (e.g. foreign, colonial, and municipal loans and de- 
bentures and the securer preference shares of industrial and com- 
mercial undertakings), "Varying Income Investment" (e.g. shares 
of the larger industrial and financial companies, banks, insurance 
companies, etc.), "Semi-speculative" (comprising "the shares of 
perhaps the largest number of companies whose securities are dealt 
with on the Stock Exchange), and " Speculative " (e.g. ordinary and 
deferred shares in the more speculative concerns). The Banker? 
Magazine Investment Index number is perhaps more authoritative, 
but it only distinguishes two classes Varying and Fixed Interest. 
An examination of the B.F.C. index numbers of investments and 
those for prices and the rate of interest during 1920-4 indicates 
that, in practice as in theory the values of Speculative Stocks 
move roughly in correspondence with the course of commodity 
prices; as regards semi-speculative stocks, the correlation appears 
to be greatest with commodity prices x the reciprocal of rate of 
interest; the value of the " Varying Income Investments " appears 
to vary rather more in accordance with the reciprocal of the rate 
of interest than with commodity prices; and the prices of " Gilt- 
edged " naturally follow the same course as the reciprocal of the 
rate of interest. 

The theory given above in the text receives some confirmation 
from the following table showing the correspondence between the 
prices of agricultural produce, the rental of agricultural, etc., lands 
assessed to Income Tax under Schedule A, and an independent 
estimate of rentals by Mr. R. J. Thompson. " Lands " is the only 
item in the " National Capital " which we know must have been 
fairly constant in amount. But it should be noted that the Income 
Tax category "Lands" (a) includes gardens exceeding one acre, 
and farm-houses and buildings, (b) excludes vacant building land 
and urban land, that (c) the valuation is gross rent payable tinder 
agreement or lease before deducting any temporary abatement, and 
(d) a new valuation is only made every five years (see Stamp, British 
Incomes, etc., pp. 340-2; R. J. Thompson, Stat. Journal, 1907). 
Consequently " Lands " so defined can change in amount as well as 
value, according as more farm buildings are set up or old ones 
allowed to decay, or with the increase or decrease of other im- 



corrected for, on the grounds, perhaps, that the rate of interest 
registered the rate of yield to all capital and not merely the 
yield on fresh capital. But if one attempts to analyse the effects 

provements, or, for example, when agricultural land becomes build- 
ing land. There was almost jpertainly some decline in amount as 
a result of the slump in agriculture during the eighties and nineties. 

Year of 


(1) Lands. 
Schedule A.* 
(England & 
Wales), % 
of 1900. 

(2) Rental 
of 400,000 
acres, % of 
1900 (R.J. 

(3) f Index 
No. of Agri- 

Rentals in terms 
of produce. 

Col. 1 

-:- COl. 3. 

Col. 2 

-r COl. 3. 

































* Refers to " Lands "England and Wales excluding Metro- 

t Taken from Table VII in Min. Agriculture's Report on Stabil- 
isation of Agricultural Prices (1925). 

The correspondence between prices and rentals is seen to be re- 
markably close, and in spite of the far-reaching nature of the 
economic changes affecting agricultural land values in this period, 
the latter if corrected for changes in prices show a fairly stable 
figure for income in terms of agricultural commodities. 

Giffen's estimate for the capital value of Lands was 1,691 mil- 
lions in 1885 (based on Income Tax figures, 1884-5) when the agri- 
cultural price index number for the average of the previous three 
years was about 134, and the general rate of interest was about 
3-0%. Stamp's corresponding estimate for 1914 was 1,155 mil- 
lions, with agricultural prices at 118 and the rate of interest at 
nearly 3-4%. If the 1914 figure is " corrected " so as to show the 
value at the same level of prices and with the same rate of interest 
as in 1885, it becomes about 1,480 millions. On this reckoning, 
the decline since 1885 was about 12*% (as against an apparent 
decline in valye of nearly one-third). It is quite possible that the 
actual decline in the quantity of lands and farm buildings assessed 



of changes in commodity prices and in the rate of interest on 
different classes of property, it seems clear that for property 
values as a whole some correction should be made for both 
factors. The exact extent of the correction to be made in each 
case can hardly be predicted accurately. But the effect of the 
two corrections will be in opposite* directions. For it is a com- 
monly observed fact that the price level and the rate of interest 
rise and fall together, or, to put it more exactly, a high rate of 
interest goes with rising prices and a low rate with falling 
prices. Consequently the general course of property values is 
likely to be more stable than commodity prices. 

Fortunately, as I remarked before, neither the price level nor 
the rate of interest differed greatly at the beginning and end of 
the period in question (1885 to 1912). The following table 
shows the Sauerbeck index numbers of wholesale prices and 
the yield on Consols (as representing the rate of interest to be 
obtained on safe investments) for the four years ending 1885 
and 1912 respectively. Owing to the nature of the Income Tax 
figures, on which the valuations of the national capital at the 
two dates are based, it is proper to compare three- or four-year 
averages, rather than single-year figures. 

It will be seen that the difference hi the four years' averages 
is negligible as regards prices, and very slight as regards the 
rate of interest. Taking three-year averages, the rise in prices 
was about 5 per cent., and the rise in the rate of interest was 
very nearly in the same proportion; so that in their effect on 
property values as a whole, the one small change would be 
counterbalanced by the other. No correction will, therefore, 
be made on this account to the valuations of the total property 
which are to be compared. 

to tax was as much as 121%. But it is to be noted that the argu- 
ment in the text does not go so far as to assume that changes in 
the quantity of any particular kind of property can be ascertained 
in this manner. It merely assumes that changes hi the value of the 
nation's capital stock as a whole, unaccompanied by changes in 
general commodity prices and the rate of interest, represent changes 
in quantity. 




Wholesale Prices : 
Index No. 

Rate of Interest 
(Yield on Consols). 




Average of 3 years 
Average of 4 years 






Average of 3 years 
Average of 4 years 



Sir Josiah Stamp estimated the " National Capital " in 1914 
at 14,300 millions. The estimate related to the total property 
owned individually and collectively by the people of the United 
Kingdom, and was based largely on the Income Tax figures for 
rent, profits, and interest. The National Debt then a com- 
paratively small item (650 to 700 millions) was counted as 
an asset to the fund-holder but as a deduction from the value 
of property belonging to the Government. By the same general 
method, Giffen had estimated the National Capital at 10,000 
millions in 1885. Certain items in Giffen's estimate have been 
criticised by the author of the 1914 estimate, and the net result 
of the latter's criticism appears to be to reduce it by some 800 
millions. For our purposes, we may also deduct in each case 
the rather unsatisfactory estimates of public property created 
from the proceeds of taxation. The total private property may 
thus be put, in round figures, at 9,000 millions in 1885 and 
14,000 millions in 1914. 1 The comparable figure for 1912 

1 See note at end of chapter. 


would be, say, 13,600 millions. These estimates are subject to 
a margin of error of rather more than 10 per cent, each way, 
but, since both estimates were calculated by the same methods, 
' the error is likely to be in the same direction in each case. 

On the basis of these figures, the increase in capital during 
the generation of 1885 to 1912 was 4,600 millions; and, on the 
supposition, for the reasons given above, that capital values as 
a whole had not altered greatly during that period, this sum 
represents the fresh accumulations of that generation. Thus 
the relative proportions of the total property in 1912 acquired 
by " saving " and inheritance are 34 per cent, and 66 per cent. 
respectively, or, in round figures, one-third and two-thirds. 

5. No great weight can, of course, be attached to exact 
percentages, in view of the rough nature of the figures and the 
considerations discussed above. But it is useful to compare 
these percentages with those obtained by another method. Pro- 
fessor Bowley has estimated that income from property, exclu- 
sive of profits derived partly from personal exertion, amounted 
to 420 millions in 1880 and 810 millions in 1913. 1 The price 
level was practically the same at the beginning and end of that 
period. 1 If we suppose the income from property to have in- 
creased during those thirty-four years at an approximately con- 
stant rate, the increase in a generation of twenty-eight years 
may be taken as represented by the increase from 100 to 173. 
If we accept the view, as before, that changes in property 
values as a whole are unlikely to take place without changes in 
the general level of commodity prices or in the rate of interest, 
this increase in property income may be taken as representing 
an actual increase in the amount of property due to fresh ac- 
cumulation. The proportion of the property accumulated dur- 
ing the lifetime of the generation works out, in this case, at 42 

1 Bowley, Change in Distribution of National Income 1880-1913, 
pp. 23-5. The proportion of the National Income going to property 
is estimated to have been approximately constant during the period. 

2 Sauerbeck's index of wholesale prices averaged 83 for 1878-80 
and 86 for 1911-13. The yield on Consols for the same years 
averaged about 3-1% and 3*3% respectively; for 1880 it was 3-0%, 
for 1913 3-4%. 



per cent. (73*173), arid the inherited portion at 58 per cent. 
The difference between these percentages and those obtained 
by the previous method is considerable. If we take the mean 
between the two results as giving the best general estimate 
under the circumstances, the proportion of the total property 
before the War derived from inheritance may be put at round 
about three-fifths. In that case, the average proportion of in- 
dividual estates acquired by inheritance and gift would be 
something less than three-fifths, for, as we pointed out above, a 
certain proportion of the total inherited property passes into the 
hands of new savers owing to the decumulation of inheritors. 

6. If one examines the estimates of National Capital by 
Giffen and others at various points throughout the nineteenth 
century, 1 it seems clear that accumulation proceeded at a faster 
rate in the thirty years or so preceding the 1880's than in the 
succeeding period; and there are other indications that the in- 
crease of capital was most rapid in the middle part of the cen- 
tury. It is probable, therefore, that inherited accumulations 
formed a rather smaller proportion of the capital of our prede- 
cessors in the 1880's than of their successors in the last genera- 
tion in the pre-war epoch. But one certainly cannot infer 
from this any general tendency for the proportion of inherited 
property to increase as generation succeeds generation. If one 
goes back two or three hundred years to a period when land 
was the chief form of property, when there was little security 
for other investments, when economic progress was less rapid, 
and when the " succession interval " was probably shorter ow- 
ing to the higher death-rate and earlier marriages it is almost 
certain that inherited property formed a larger proportion of 
the total than in 1900, and that the general economic influence 
of inheritance was greater. In the Middle Ages, of course, law 
and custom combined to make its influence paramount. 

As regards the present generation in Britain, the real addi- 
tions to the nation's capital goods made during the lifetime of 
living property owners cannot be nearly as great as in the pre- 
ceding generation. For the bulk of individual savings from 
1 See note at end of chapter. 


1914-19 was absorbed in War expenditure and we are now 
saving probably a smaller proportion of our private incomes 
than before the War. Nevertheless, the aggregate of individual 
accumulations (including, of course, investments in War Loans) 
probably forms a greater proportion of the .aggregate property 
than in 1914. For, the price revolution since that date has ob- 
viously benefited active business men at the expense of the less 
active or less business-like inheritors of fortunes invested in the 
old " safe " securities. Hence the proportion of the British 
citizen's property derived from inheritance is, on the average 
of all classes, almost certainly smaller than in the pre-war era. 
Higher Death Duty taxation has, of course, contributed to the 
same result. 

In some other countries of Europe, where prices and 
economic conditions have been even less stable, the decline 
since 1914 in the proportion and importance of inherited 
wealth is probably much more marked. 1 


* Giffen's valuation for 1885 is given in his Growth of Capital, see 
pp. 11 and 43. For Stamp's estimate on the same lines for 1914 
see British Incomes, etc., p. 404. A large part of Chapter XI of 
British Incomes and Property is taken up with a critical examina- 
of the Giffen valuation; and a revised estimate for 1885 in accord- 
ance with the suggestions made there is given in the 3rd column of 
the following table, the second column of which shows Giffen's 
own figures, and the fourth column Stamp's estimate for 1914. The 
same chapter, referred to above, discusses the general utility and 
limitations of the Giffen method of capital valuation, and shows 
to what extent the method is necessarily arbitrary. But any general 
theoretical criticisms of the Giffen method apply equally to the 
1885 and the 1914 estimates. 

NOTES TO TABLE. (The page references are to Stamp's British 
Incomes and Property) 

(a) "Lands" "The Schedule A assessments take little or no 
account of potential building values of land near towns, and valu- 
able vacant sites are omitted altogether." Stamp holds that the 
Giffen method of valuation is only intended to take into account 
the existing utility of property, not the possibility of improved uses, 
but that Giffen's estimate ought nevertheless to be supplemented 

1 See Chapter IV, Sec. 4, p. 120 above. 


(see p. 137). 

1885 TO 1914 








Lands (Schedule A) . . (a) 




Houses (Schedule A) and Build- 





" Other Profits " (Sch. A) (b) 




Farmers' Capital (Sch. B) (c) 




Railways in U.K. . 




Railways Abroad 




Mines and Ironworks . (d) 




Gasworks .... 




Waterworks, Canals, Quarries, 

Fishings, etc. . . (d) 




Other profits and interest paid 

out of rates .... 




Colonial and Foreign Securities 

(Schedule D) Coupons (Sched- 

ule D) ...(/) 




"Businesses not otherwise de- 

tailed'* (Other Public Coys., 

Trades, Professions (including 

estimate for evasion)) . (e) 




Income from Abroad escaping 

Tax .... Or) 




Capital of Non-Income Tax pay- 

ing classes not included else- 

where (chiefly Stock-in-trade, 

Tools, etc.) . . . (h) 




Moveable Property not yielding 

money income (furniture, etc.) 





Schedule C. Government Securi- 

ties (Home, Colonial, Foreign) 


National and Local Government 
Property less Centra] and 

\ 1,027 


1 ' 148 \ 1548 
400 j 1,548 

Local Government Loans in- 


cluded above 





Total Private Property (excluding 

last item above) . 





say, in round numbers, . 







by the capital value of vacant building lands, on the basis of their 
immediate building value (p. 384). Stamp includes in his 1914 
estimate 30 millions for vacant building lands. A comparable 
figure would be, say, 20 millions in 1885. 

(b) " Other ProfitsSchedule A " (Manors, fines, tithes, sporting 
rights, etc.). (Giffen took thirty years' purchase. This should be 
"nearer twenty-one years," p. 386.) 

(c) Farmer's Capital. " Paget's Return " gives 300 millions for 
1885, and Major Craigie the same amount for 1887. Giffen's esti- 
mate was based on the Schedule B assessments of farmer's profits, 
which merely bear a conventional relation to the rent of their land 
(pp. 386-7). 

(d) Mines and Quarries. Giffen took four years' purchase, 
9i y.p. suggested instead (p. 392). For Ironworks Stamp takes 

9 y.p. instead of Giffen's 4 y.p. 

(e) " Other Public Companies, Trades, and Professions " (now 
classified as " Business not otherwise detailed "). The estimate for 
this important item is open to a large margin of error in each 
case. Giffen's estimate of 1,360 millions was obtained by assum- 
ing one-fifth of the profits of private businesses to be derived from 
capital, and capitalising this part at 15 y.p. The profits of public 
companies he capitalised at 20 y.p. The inadequacy of this method 
is revealed by the change in the proportion of the profits assessed 
on private businesses and public companies respectively in the 
period following 1885. Sir Leo C. Money's method is to take half 
the whole net profits ( + an estimate for evasion) and capitalise at 

10 y.p. Stamp's estimate for 1914 is the mean of the results of the 
two methods (though in the Giffen method he adopts 15 y.p. 
for public companies). The two results differ by 1,560 millions 
in 1914. The difference is much less in 1885 only about 100 
millions and the mean in this year is about 1,280 millions. (If 
15 y.p. is adopted for public companies as in 1914, the result of 
both methods is about the samesay 1,200 millions.) (See 
pp. 393-8.) 

(/) Foreign and Colonial Securities Coupons. The figures here 
relate to income from foreign securities, other than Foreign and 
Colonial Government Funds taxed under Schedule C. Bankers 
and Coupon Dealers paying interest on Bearer bonds were not 
directly assessed before 1886 (Coupon Act), and consequently, be- 
fore that date, much foreign income escaped taxation. The assess- 
ment in respect of Coupons was 19 millions in 1913-14 (p. 227). 

(g) Income from Abroad Escaping Tax. Giffen's 1885 estimate 
was based on a misconception. He took 50 millions as the income 
and capitalised at 10 y.p. Stamp, for 1914, takes 20 millions as 
the income from abroad not remitted and thus escaping assessment, 



and capitalises at 20 y.p. Bowley's estimate for evasion both as 
regards home and foreign income is 60 millions for 1880. Giffen's 
estimate for home income evasion was 36 millions. The difference 
between the two figures 24 millions may or may not represent 
approximately the true figure for foreign income evasion at that 
tune. But there is no reliable estimate. 24 millions capitalised 
at 15 y.p. gives 360 millions (pp. 401-2; see also Bowley, Change 
in Distribution of National Income, p. 9). 

(h) Capital of Non-Income Tax-paying Classes not included in the 
Income Tax categories. Income below the tax limit from most of 
the chief sources is included in the gross Income Tax assessments. 
This item refers chiefly to the stock-in-trade, etc., of small shop- 
keepers and workers on own account. Giffen's estimate was here 
again based on a misconception. Bowley puts the number of those 
with " intermediate incomes " under 160 at 1,850,000 in 1880, and 
4,310,000 in 1913. If, on this account, we halve the 1914 estimate 
for non-Income Tax-payers' private capital we get 100 millions 
for 1885 (see pp. 398-9, and Bowley, op. cit. t pp. 11 and 16). 

(i) Moveable Property not yielding Money Income. Giffen's 
estimate is criticised as too high by various authorities; the revised 
figure is obtained by reducing the 1914 figure roughly in proportion 
to the total capital (pp. 400-1). 

(/) Schedule C. Government Securities and National Debt. Giffen 
deducts the National Debt from this Schedule. Stamp deducts it 
from the valuation of Government property in the next item 
(pp. 388-9 and 402-4). 

Giffen's figure for Central and Local Government property is 
500 millions. This estimate appears to contain some items dupli- 
cated above (such as interest secured on Rates). The revised figure 
of 250 millions is simply Stamp's 1914 figure reduced approxi- 
mately in proportion to the total capital. But all estimates of Gov- 
ernment property, such as roads, bridges, sewers, etc., are necessarily 
unsatisfactory and arbitrary, as they do not come into the market. 

For a valuation of the total private property of the people of 
the U.K., we ought to deduct this last item; but the National Debt 
may be left in, since we are concerned with the aggregate value of 
property rights, rather than an inventory of goods. The National 
Debt was a comparatively small item in 1885-1914, so its inclusion 
or exclusion makes little difference in a comparison. 

NOTE 1 TO PAGE 139. See lists of Estimates in Stamp, op. cit., p. 406. 
According to Giffen, the value of the National Capital was 4,000 
millions in 1845, 6,115 millions in 1868, 8,548 millions in 
1875, and 10,037 millions in 1885. If we correct for changes both 
in prices and the rate of interest, using 1912 as a base, these valua- 



tions become 3,700 millions in 1845, 5,100 millions in 1868, 6,750 
millions in 1875, 9,900 millions in 1885. Correcting for changes 
in prices only, the figures are: 1845, 3,780 millions; 1868, 5,000 
millions; 1875, 6,700 millions; 1885, 10,500 millions. The in- 
crease in the valuation, in the thirty years 1845 to 1875, expressed 
as a percentage of the 1875 capital is (i) for the " uncorrected " 
figures 53%; (ii) for figures corrected for prices and the rate of 
interest, 46%; and (iii) when corrected for changes hi prices only, 
44%. In each case the percentage is much greater than that for 
the thirty years 1885-1914, which, calculated on the same plan, 
would he about 37%. 




1. WE decided at the beginning of the last chapter that, in 
order to gauge the influence of Inheritance on the distribution 
of wealth, two questions of fact require to be answered first, 
what proportion of the aggregate property has been acquired 
by inheritance, and second, whether the larger estates belong 
on the whole to those with the larger inheritances. The first 
question, taken with reference to pre-war Britain, was the^sub- 
ject of the last chapter; it related to what one may call the 
direct influence of inheritance on the distribution of property. 
The second question, which is the main subject of the present 
chapter, has a rather wider bearing and takes into account the 
effects of unequal inheritances on earnings and savings. 

In the comparatively stable times of the late Victorian era, it 
was often asserted that the large fortunes of one generation are 
quickly 'disintegrated in the next or the next but one. 2 In the 
industrial North of England " three generations from clog to 
clog " was a common saying. To-day, the " self-made " man 
and the beggared aristocrat are commoner types than twenty 
years ago, and the revolution in property values during the War 
epoch, aided no doubt by drastic increases in the Death Duties,, 
has lent colour to the widely held opinion that most rich men 
owe their fortunes to ability and lucky enterprise rather than 
inheritance. How far is that view an accurate one in present- 
day Britain? 

1 Parts of this chapter have previously appeared in an article in 
the Economic Journal of March, 1928, and are here reprinted by 
the courtesy of the Editor, but in a revised form. 

a As an absurdly extreme example of this view, see the remark of 
Leroy Beaulieu in his essay on the Distribution of Wealth (1880) 
that it was almost as difficult to preserve as to create a large for- 
tune (quoted in Dalton, Inequality of Incomes, p. 282). 



Of published information on the subject, there is little that is 
of value. The biographies of millionaires deal generally with 
lives that are by no means typical of those of the richer classes 
as a whole. It is usually only the lives of exceptional people 
that appeal to the author, the publisher, and the newspaper 
editor. Far more space is rightly allotted to the cabin-boy who 
becomes a captain of industry, than to the mediocrity of here- 
ditary wealth or hereditary poverty. It would obviously be un- 
wise to base on the lives of Carnegie or Lord Leverhulme 
generalisations about the economic history of members of the 
upper classes in America and Britain. The obituary notices of 
more mediocre men in the daily press are also liable to be mis- 
leading, since they usually lack precise information on financial 
matters. There is, indeed, a limit to the fertility of private in- 
quisitiveness, and that limit is soon reached, when one is deal- 
ing with the economic conditions and histories of one's fellows. 

Even the powers of inquisition of the Board of Inland Re- 
venue are at present too limited to enable the authorities to find 
out the exact amount of gratuitous property acquired by any 
given individual. At present its published records cannot be of 
much direct service; for they are bounded by the limits pre- 
scribed by the necessities of taxation; and our fiscal system 
does not attempt to distinguish between property acquired by 
inheritance and by other methods. 1 

There is, however, one source of information which does not 
seem to have been tapped hitherto. The Probate Registry at 
.Somerset House contains particulars and copies of practically 
.all the probates and letters of administration granted in Eng- 
land and Wales since the year 1858, and a good many of those 

1 I imagine, however, that it would be physically possible for 
the Inland Revenue authorities, in the case of decedents among the 
richer classes, to ascertain the total amount received by them, on 
which they had paid legacy or succession duty, and the proportion 
which that amount bore to the total value of their estates as de- 
clared for probate. But a good many inheritances and bequests 
are exempt from the legacy and succession duties. Nor would the 
authorities be able to trace the bulk of gifts given or received 
during lifetime in individual cases. . 



granted before that date. 1 It seemed, therefore, possible to 
take a sample of well-to-do persons who died recently, and to 
ascertain for comparison the estates left by their parents or 
other relatives under whose will they benefited. Such an in- 
vestigation would enable one to see more clearly the extent to 
which the distribution of property is or is not hereditary in 
character. A comparison of the probate values of the estates 
of two generations is, of course, only a rough test. For, in the 
first place, the amount of property which a man leaves at death 
is not a really satisfactory index to his economic condition dur- 
ing life, and still less to the economic benefits and opportunities 
which he is able to transmit to his children. I have already re- 
ferred to the various methods alternative to inheritance .by 
which property (and a superior capacity to acquire property) 
may be obtained gratuitously. But, apart from that, we have 
also to remember that even with unlimited expenditure of time 
and money on a careful examination of wills, it is often not 
possible to find out the precise amount which a man inherits, 
let alone receives by way of gift or settlement. Not only may 
he benefit under a number of different wills, but, hi any given 
will, the extent of his benefit is usually not stated explicitly as 
a sum of money. It may be a business or a landed estate of un- 
known value. Again, the trust fund is a common feature of 
many rich men's wills, and the ultimate benefit of any one 
beneficiary depends largely on whether the other beneficiaries 
predecease him, whether they leave children or not, and so on. 

It is only feasible, therefore, to make a rough comparison 
between the estates of successors and predecessors, bearing in 
mind that that in itself is sometimes a misleading index to the 
relative wealth of the individuals concerned. 

Even for this limited purpose, the Probate records are not, by 

1 Before 1858 (Court of Probate Act, 1857) the probate of Eng- 
lish wills of personalty was within the jurisdiction of the Ecclesias- 
tical Courts, and only those proved in the Court of Canterbury are 
in the records of Somerset House Probate Registry. Since January 
1st, 1858, the Registry is supposed to contain particulars of all 
English estates passing under will or intestacy. In fact, there are 
probably a few omissions in the earlier years. 



themselves, an adequate guide. In the first place, the Probate 
valuations do not include settled property, of which the de- 
ceased was not competent to dispose. Secondly, they do not 
include property situated abroad. Thirdly, before 1898, they 
do not include Realty. 1 The omission of settled property is a 
grave defect for our purposes. The second omission is not so 
important. The omission of realty before 1898 can be partially 
remedied, because there are supplementary sources of informa- 
tion as regards landed property, to which I refer below. Al- 
though, for these reasons, the Probate records are far from ideal 
as a basis for statistical investigation, they are nevertheless the 
only reliable source of information available at the present time. 
I took two separate samples of persons who died in recent 
years, and endeavoured to ascertain in each individual case the 
amount of property left by the father or other predecessor from 
whom the chief inheritance was likely to be received. The first 
sample is composed of ninety-nine persons whose estates were 
proved as over 200,000 gross during twelve months in 1924-5. 
The Times list for the year in question which may be taken 

1 The probate values of estates relate only to that property in 
respect of which a Probate Grant is required in this country. In 
general, therefore, they cover only real and personal property 
situated in the United Kingdom, and within the free disposition of 
the deceased. It should be noted, however, that property received 
under a settlement, which terminates on the recipient's death, and 
is thus within the disposition of the testator, would be included 
for probate. Also personalty situated at home is not confined to 
home investments, but would include shares in companies trading 
abroad, but registered in this country. 

Before 1898 (Land Transfer Act, 1897) probate was required in 
respect of personalty only, and the probate values are the same 
as those on which the old Probate Duty was paid (before the Har- 
court Estate Duty of 1894). Personalty included Leaseholds for a 
term of years. Before 1883, the values are only stated in round 
figures (e.g. not exceeding 500,000 or 450,000 etc.). Gifts inter 
vivos are not included in the probate valuation. 

The relation between probate values and total value of estates, 
and the effect of excluding realty and settled property, etc., may be 
gauged from the following figures taken from the Estate Duty 
Statistics. But note that in the 1897-8 figures the relative propor- 



as complete for estates of this size x contained altogether 117 
names. Of these fifteen were Scottish, Irish, or foreign resi- 
dents, and in another three cases the parents' estates were 
known to have been probated outside England. I discarded 
the latter, and confined myself to the ninety-nine English 

tion of settled property is understated, because before 1914 settled 
estates were only taxed once in the course of settlement. 








PERSONALTY situated in U.K. 
(Great Britain since 1922), 
passing under will or in- 
testacy of the deceased 
Do. do. situated abroad . 
Settled Personalty 
Inter vivos gifts and Other 









Total Personalty (including 




REALTY, passing under will or 
intestacy (within U.K.. only) 
Settled Realty 
Inter vivos Gifts and Other 
Realty .... 






Total Realty (excluding Lease- 
holds) .... 





Total Property subject to 
Estate Duty 



After January 1st, 1926, the value of settled land is included in the 
amount of the probate grant. 

1 The Times office states that, in their opinion, the lists of wills 
published by them may be regarded as complete for all estates over 
100,000. The sample was taken from the lists between September 
1st, 1924, and August 31st, 1925, inclusive. 



estates which could be investigated in London. Only six of 
these belonged to women. 

Now, according to the Estate Duty Statistics, there were, 
during the year in question, about 135 English estates of over 
200,000 net, and of these about eighteen belonged to women. 1 
The reason for the discrepancy in the totals and in the propor- 
tion of women's estates is to be found in the exclusion of settled 
property from the Probate figures. Since women's inheritances 
are more often settled than men's, and the landed families also 
frequently entail their estates, one important effect of this ex- 
clusion is to reduce the proportion of persons in the sample 
whose property is derived largely from inheritance. 3 This con- 
sideration must be borne in mind in any critical examination of 
the results of my investigation. 

Of the six women's estates in the sample, four belonged to 
widows, and in the case of the latter I chose for comparison 
the estates of either husband or father, choosing the one under 
whose will the widow appeared chiefly to have benefited. In 
the case of the ninety-three men's estates, I assumed, in the 
absence of definite information to the contrary, that the chief 
inheritance had come in the direct line of descent from the 
father. There were four exceptions among the landed gentry, 
where it was known that the title and estates had descended 

1 In the year to March 31st, 1925, 145 English estates worth over 
200,000 became liable to estate duty. The corresponding figure in 
1925-6 was 125. Men's and women's estates are distinguished in 
the classes over 250,000 and 100,000 to 250,000. The propor- 
tion of women's estates for the over 250,000 class is 1 in 8 or 9, 
and for the next class, 1 in 6. 

* According to the Estate Duty figures for 1924-5 and 1925-6, 
settled property formed 11-1% and 13*6% respectively of the total 
property held by men, but as much as 26-4% and 26-1% of 
women's estates. 

Settled property is also a much larger proportion in the case of 
landed estates than in the case of personalty. Settled realty was 
26% of total realty in 1924-5 and 32% in 1925-6; while the 
proportion of settled to total personalty was not more than 13-5% 
and 14-3% respectively. Women and landed gentry are therefore 
necessarily under-represented in my samples. 



from a brother or an uncle; in three other cases I took for com- 
parison the estate of the wife or father-in-law rather than that 
of the father; and in another three cases, where the father's 
estate could not be found, I substituted the estate of another 
relative of which the probate or administration had been 
granted to the successor in my sample. In another case, where 
the father's estate was not found, I had to be content with the 
estate of the grandfather. I should add that in the majority of 
cases, where the estates of brothers, husbands, or wives were 
taken instead of those of the fathers, they had passed more 
than thirty years before the death of the successors. 

The names of the fathers or other predecessors were ascer- 
tained in ninety-three out of ninety-nine cases, from directories 
and obituary notices, from the Register of Births at Somerset 
House, and from information kindly supplied by the personal 
representatives of the deceased. 1 In eighty-three out of ninety- 
three cases, the predecessor's estate was found in the Probate 
Registry, and in another six cases, the estate could safely be put 
at under 1,000. Thus the first sample contains eighty-nine 
" effective " cases out of a possible ninety-nine, and of the 
eighty-nine estates, six belonged to women. 

The second sample investigated consisted of 140 English 
estates between 10,000 net personalty and 200,000 gross, re- 

1 By courtesy of the Registrar-General, a search of some 150 
birth certificates was undertaken by his department, 45 of these in 
respect of the first sample and 105 in the second. Those born 
before 1837 would not be registered at the General Register Office, 
and for some years after that date there is, I am informed, a defi- 
ciency of perhaps 10% or so of births and more in some districts. 
The deficiency is not confined to the poorer classes. 

In a few cases in the first sample, and in still more in the second 
sample, .the name was too common for identification. In other 
cases, it is fairly certain that the child was born outside England. 
I am very greatly indebted to the personal representatives of ten 
persons in the first sample and thirteen of those in the second, who 
kindly supplied particulars a$ to the name and date of death of 
the parent. A few were good enough to add the value Of the 
parent's estate, and one deserves honourable mention for supplying 
full details of the successor's inheritance. 



ported in The Times during six weeks of January and February, 
1926. The sample was chosen on a purely arbitrary basis. 1 
But all persons born before 1837 were excluded, for the prac- 
tical reason that births were not registered in the General 
Register Office at Somerset House before that year, and 
their parentage therefore could not be ascertained. 1 I also 
discarded those who died during the lifetime of their 
parents. Some fourteen estates were excluded for these two 

It was also necessary to exclude all married women and 
widows whose husbands' or whose maiden names were not 
stated, as, in such cases, the difficulty of finding the wills by 
which they benefited would have been insuperable. For this 
reason about one-half of the women's estates had to be dis- 

The sample finally consisted of 108 men's and sixteen 
women's estates.* As before, the exclusion of settled property 
from the probate figures must result in reducing the proportion 
of women and other inheritors of settled property, who would 
otherwise have come into the sample. 

It was naturally a more difficult matter than in the case of 
the first sample to find the parents of the successors in question, 
but after searching in the same sources as those mentioned 
above, the names of the fathers were definitely identified in 108 
out of 124 cases. The estates of the predecessors were found 
in the case of 78 out of 108 men, and in another eight cases it 
was fairly certain that the estate did not exceed, say, 1,000. 

1 As regards five f the six weeks, only those with surnames 
beginning A to H were included, in the remaining week all were 
included. The Times lists are probably not complete for estates 
under 50,000. But there does not appear to be any particular 
bias in those that are published. 

8 Persons born before 1837 were included in the first sample as, 
in most cases, their parents could be found from directories or 
obituary notices. 

' In addition to the omissions above mentioned, I excluded also 
two cases, where the fathers were known to have died outside 
England, leaving no English estate. 



The estates of husbands or fathers were found in the case of 
all sixteen women. 

4. I mentioned above that the probate valuations do not 
include realty before 1898. In the case of estates left before 
that date, therefore, it was obviously necessary to supplement 
the probate values by estimates of the deceased's real estate. 
The only supplementary source of information that is at all 
easily available is the Return of Landowners, or New Domes- 
day Book, which was made by the Local Government Board in 
the seventies, and set out to give county by county the names 
and addresses, numbers of acres owned and gross annual value 
in the case of all landowners of more than one acre. The Re- 
turn has many deficiencies as a work of reference; and it ex- 
cludes the Metropolis. 1 Moreover, in accordance with the agri 
cultural assessments, it understates the value of building land 
in neighbourhoods that are developing. Again, the owners of 
freehold premises occupying less than one acre would be ex- 
cluded. As regards the big landowners, later and more ac- 
curate information can be obtained from other works of 
reference. 2 

In the case of twenty-five predecessors in the first sample, and 
twenty-four in the second, rough estimates of the value of the 
real estate left by them were made from these sources. Of 
course the estimates could only be very rough. For it was not 
certain at what number of years' purchase the gross annual 
value given in the returns should be capitalised and, in a 
number of cases, one was also forced to assume that there was 
no great change between the seventies and the date of death in 
the amount of land owned. But the valuable review of the sub- 
ject given in Sir Josiah Stamp's British Incomes and Property 
shows the number of years' purchase at which the chief 
authorities capitalised the gross annual value of land at dif- 
ferent dates; and figures of rentals given some time ago by Mr. 
R. J. Thompson enabled one to make an approximate allow- 

1 For the defects and inaccuracies of the Returns, see the official 
introduction to them. 

1 E.g. Bateman's Great Landowners (1883 edition used). 



ance for the decline in agricultural land values during the 
slump of the eighties and nineties. 1 But my estimates of realty 
could not take into account mortgages and other charges to 
which the property might be subject. The method certainly 
allows large possibilities of error, but it was not too unsatisfac- 
tory under the circumstances. Even quite large errors in the 
estimates of real property left by the forty-nine persons in 
question would not make a great difference to the results as a 
whole, especially as only in ten cases was the realty estimated 
to exceed 100,000. In the case of seventeen predecessors in 
the first sample, and twenty-four in the second, dying before 
1898, no landholding could be traced in the official return, and 
only the personalty valued for probate could be included. In 
the aggregate, there is probably an under-statement rather than 
over-statement of realty. My estimates of the realty of those 
dying before 1898 amounted, in the first sample, to 1-704 
millions out of nearly 8,000,000 for their total property; in the 
second sample, the corresponding totals (in the case of men's 
estates only) were 347,500 for realty out of 1,508,000. The 
ratio of estimated realty to probate value of personalty is 27 
per cent, in the first case, and 30 per cent, in the second; 
whereas the Estate Duty figures for 1897-8 showed a ratio of 
32 per cent., and later figures indicate that the proportion is 
rather higher in the case of the larger estates. 

It is to be remembered, however, that the estimates of realty 
include settled property, while the probate values do not. 
Hence the aggregate of the predecessor's property includes a 
certain proportion of landed property passing under entail, 
while the figures for the successors' estates relate only to pro- 
perty within their free disposition. In fact, however, this dis- 
crepancy makes little difference in the aggregate,* and, in a 

1 Applying the index-number of agricultural rentals at different 
periods to the number of years' purchase at those periods, I took 
the following number of years 9 purchase of the 1870-80 gross 
annual value of lands in rural areas for estates left at the following 
dates: 1875, 30 y.p.; 1885, 23 y.p.; 1895, 15 y.p. For urban realty 
I took 15 y.p. throughout. 

* Assuming that as much as one-third of the estimated realty of 



number of individual cases, it is clear that the entail ceased on 
the death of the successor. 

With regard to the period chosen for the investigation 
namely, the generation that ended in 1925 in some respects 
this is not the most satisfactory for our purpose. For it in- 
cludes the abnormal War period, when " windfalls " due to 
rapid changes in prices and abnormal conditions of demand 
contributed far more to the establishment of new large for- 
tunes than they did in the preceding generation or are likely to 
do within the lifetime of the present generation in this country. 
But had an earlier period been chosen, the technical difficulties 
would have been greater. 1 

I give below a summary of the results of the investigation of 
the two samples. Each is dealt with separately in turn, and 
the results are then compared. 


5. The following table (Table I) shows (i) a classification 
of those in the sample according to the size of estates left by 
their predecessors, (ii) the aggregate value of the successors' 
and predecessors' estates, and (iii) an estimate of the proportion 
of the latter bequeathed to the successors. (Note that in 
seventy-five out of eighty-nine cases, the " predecessor " is the 
father, in four cases the brother, in two cases the uncle, in three 
cases the wife, in three cases the husband, in one case the 
father-in-law, and in one case a grandfather.) 

(i) Distribution of Predecessors? Estates. Looking first at the 
eighty-nine known cases, we find that forty-five of the pre- 

the predecessors was entailed (see note 2 to p. 150), the aggregate 
value of their unsettled property would need to be reduced by 
about 6i% in the first sample, and not more than 4% in the 

1 For a larger proportion of predecessors would have died too 
early for their estates to be entered in the London Probate Registry, 
and outside estimates of realty would have been necessary in a 
larger number of cases. Moreover, a larger proportion of suc- 
cessors would have been born before 1837, the year in which the 
English Registry of Biyths was started, so that their parentage 
could not have been ascertained from birth certificates. 



Men Successors with 




Amount of 

2 fr* 


a> ? A 

fi ^ 

Estate (gross 
value passing 
under will or 



o o 




intestacy), (a) 









Over 1,000,000 
500,000-1, 000,000 






















5,000-1 0,000. 
1,000-5,000 . 
Under 1,000 . 








Total known . 







Predecessors' estates 







Total in Sample 
Estimated number 







excluded from 

sample owing to 

omission of settled 






Total indicated bv 

Estate Duty 













Aggregate Value of 
successors' estates 
(Where predecessors' 
estates known) 
Aggregate Value of 







- predecessors' 








Proportion of pre- 







decessors' estates 

bequeathed to suc- 

cessors (rough esti- 

mate) . 







Ratio of Bequests to 
successors' estates 







(rough estimate) . 







(For notes a, b, c, d, e, /, see next page.) 



Notes to Table I. 

(a) Including settled land in certain cases see text. 

(5) This class (5,000-1 0,000) includes one estate which probably belongs 
to a higher class, as letters of Administration were granted in respect of 
certain Trust property only. The other property was known to include 
certain landed estates, but the value could not be ascertained. A will 
was made but never proved. 

(c) This class (1 ,000-5,000) includes (i) one case where successor's father 
died too early for inclusion in Probate Registry. His wife's unsettled 
estate was over 3,000, but his brother-in-law left over 400,000, and his 
uncle nearly 200,000 ; (ii) in another case the estate of the father (a 
shipowner) was not found, and the estate of the grandfather (a grocer) 
was taken instead. 

(d) This class (under 1,000) includes (i) seven predecessors whose 
estates were not found ; six of these were known to have been relatively 
poor and one who was well-to-do had distributed all his property, during 
his lifetime, to his children ; (ii) also includes one case where successor's 
father died before 1858. The unsettled estate of his wife (just under 
1,000 personalty) was taken for comparison. But her brother left over 
400,000. (ii) also includes another successor whose father left just under 
1,000, but who was connected with an aristocratic family on his mother's 
side and changed his name '* for family reasons." 

(e) Total English estates over 200,000 net capital value settled and 
free subject to Estate Duty during year in question about 135. Three 
English estates were excluded from my sample, as the father's will was 
proved in Scotland or Ireland. The comparable total is therefore put 
at 132 (see text). 

( / ) Bequests to women estimated in five cases (three widows, one 
married, one single all were the sole principal legatees under will of hus- 
band or father). 

decessors, or just over half of them, left estates (excluding all 
settled personalty and most settled realty) of over 100,000; 
fifty-two, or nearly three in five, left over 50,000; and sixty- 
two, or seven in ten, left over 10,000. 

There were eight millionaires among the successors in my 
sample, including one woman; only in one case had the pre- 
decessor left less than 50,000, ' and in six cases his estate was 
over 250,000. There were twenty-two successors (including 
two women) with over half a million pounds, and in twenty- 
one cases the approximate value of the predecessors 9 estates is 
known. Twelve of the latter were worth over a quarter of a 

1 This one case is a most remarkable one. A wool merchant 
left over 1,500,000. His father was apparently a weaver small- 
holder. His estate was not found in the Probate Registry. But the 
will of the mother was found under 40 personalty. The mother 
was apparently illiterate, as her will was signed by her mark. The 
son's history is shrouded in obscurity, but must contain features 
of considerable interest. 



million pounds, while only seven were less than 25,000. 

I have already explained that the values mentioned refer, for 
the most part, to unsettled property only; that no allowance can 
be made for gifts inter vivos; and that the predecessors, whose 
estates are chosen for comparison, are the fathers or other near 
relatives, under whose wills or intestacy the successors in ques- 
tion were known to benefit directly. Thus it cannot be inferred, 
for example, that all the twenty-one successors, whose pre- 
decessors' estates are put at under 5,000, had little or nothing 
to build upon in creating their fortunes. For two, at least, it 
is known, had wealthy connections by marriage, and the same 
applies in at least two other cases where the parents' estates are 
in the 5,000 to 25,000 class. Another had received his share 
of his father's property during the latter's lifetime. (See Notes 
to Table.) 

It will be noticed that the predecessors of all the six women 
in the sample were in the over 100,000 class, and that the pro- 
portion of wealthy predecessors is thus less for men only than 
for both sexes. It is an obvious though significant observation 
that a larger proportion of women's than of men's property 
must be due to inheritance. In the case of the men successors 
only, in this sample, rather more than half the predecessors 
left over 50,000, but nearly one-third left under 10,000. 

Such are the facts regarding the eighty-three men and six 
women whose predecessors' estates were found or could be 
estimated. There remain ten male successors in the sample, 
whose predecessors' wealth is not known. It cannot be safely 
assumed that in all these ten cases, the parents left little or 
nothing. In eight of these cases the fathers' names were not 
known, and I have already explained that poverty cannot be 
inferred from that; and in one of the two remaining cases the 
father died before the commencement of the Probate Registry. 
Nevertheless it is probable that the majority of those, whose 
parents* estates were not found, were " self-made " men. Thus 
the sample is biased by their exclusion, in the direction of 
showing rather too high a proportion of wealthy predecessors. 
But, on the other hand, as I showed above, the sample was 



biased at the start in the opposite direction by the omission of* 
settled property, so that women and classes such as the landed 
gentry, whose inheritances are frequently settled or entailed, 
were under-represented. 

By a comparison between the number of estates valued for 
probate at over 200,000 and coming into the sample, with the 
number in the same class reviewed for Estate Duty in the same 
year, I have estimated that some thirty-three persons (about 
twenty-one men and twelve women) were excluded from the 
sample, owing to the omission of their settled property from 
the probate figure. It is clear that the large majority of these 
would be inheritors rather than active creators of fortunes. If 
one makes the assumption which is, on balance, probably not 
far from the truth that all the ten predecessors, whose estates 
were not found, left less than, say, 10,000, and, on the other 
hand, that the predecessors of those not coming into the 
sample, owing to the omission of settled estate, left over, say, 
50,000 then the proportion of predecessors with over 50,000 
is about three in five in the case of the men successors, and not 
quite two in three in the case of both sexes. The proportion of 
predecessors leaving relatively little property (say, under 
10,000) would be between one-quarter and one-third. 

6. (ii) Aggregate Value of Successors' and Predecessors' 
Estates. The aggregate value of the property left by the 
eighty-three men successors in the sample is put at 37-7 mil- 
lions, while the aggregate left by their fathers (or other prede- 
cessors from whom they inherited) is estimated at 22-4 mil- 
lions. The estates of the six women successors amounted to 
3,415,000, and those of their fathers or husbands to 3,470,000. 

It must be remembered, in comparing these totals, that they 
relate to the gross value of property passing under will or in- 
testacy, exclusive of property abroad. Settled property is not 
included, except that a certain amount of settled land has been 
incorporated in the aggregate of the predecessors' estates (prob- 
ably about 2 millions in all), but the bulk of this settled land 
appears to have been within the free disposition of the heirs in 
the sample at the time of their death. It is necessary also to 



remember that what is settled in one generation is not neces- 
sarily settled in the next, or, in other words, that much of the 
property enjoyed by the fathers but not within their free dis- 
position may come within the disposition of the sons, while 
much of the sons' settled property may have been settled under 
the wills of their fathers. Nor can it be assumed that, if the 
custom of settling property had been equally common in the 
two generations, the ratio of settled to " free " property would 
be about the same in the case of both predecessors and suc- 
cessors. For, as I have previously shown, persons with large 
settlements are under-represented as regards successors in the 
sample, whereas there is no reason why they should be under- 
represented as regards the predecessors. 

The same consideration applies also to gifts inter vivas. As 
regards the successors in the sample, there is a bias against 
persons who made large gifts during life i.e. such persons j 
would be under-represented but no such bias exists in the ( 
case of their predecessors. The fact that persons dying in 1924 : 
probably gave away a larger proportion of their property (ow- 1 
ing to fear of Death Duties) than persons dying in 1894, does I 
not outweigh this consideration. 

Thus the totals of the aggregate property of predecessors and 
successors, given in the Table, can only be regarded as a very 
rough indication of the actual amount of property enjoyed by 
each generation during tife. If both settlements and gifts inter 
vivos could have been included, the predecessors' property 
would certainly have been increased in a higher proportion 
than the successors'. 

In the second place, it is necessary to bear in mind, when 
comparing predecessors' with successors' estates, that the bulk 
of the property of the former passed between 1880 and 1905, 
when the whole scale of prices and property values was quite 
different from that ruling to-day. The 26 millions left by the 
predecessors could, in the form of cash, have bought as many 
commodities at the time of their death as about 48 millions in 
1924, and, on the basis of this reckoning, their property was 
worth rather more than that of those of their successors who 



appear in my sample. But, owing to the higher rate of interest 
accompanying the rise in commodity prices, property values as 
a whole have not increased to the same extent as the general 
price level. 26 millions invested in 1880-1905 would have 
produced then about as large a secure " real " income of con- 
sumable commodities (before direct taxation) as 30 millions 
in 1924, or as large a " real " net income, after direct taxation, 
as about 40 millions. 1 But the effect of the great price 
changes, during the generation in question, in individual cases, 
would depend, of course, on the nature of the property, and 
whether it was kept in gilt-edged securities, or in land, or was 
put into the more speculative investments of industry and 

As regards the relative magnitude of the individual fortunes 
of the predecessors, it may be useful to remember that prob- 
ably about the same proportion of the people in 1894 owned 
estates in excess of 130,000 as were in the over 200,000 class 
in 1924.' 

7. (iii) As regards the proportions of the predecessor? 
estates bequeathed to the inheritors in question, my estimates 
are necessarily very rough. I have previously explained that, 
even after a most careful and detailed examination of a will, 
it may often be impossible to ascertain the exact value of a dis- 
position, when this is not a definite cash sum. But I had no op- 
portunity for making a thorough analysis, and my estimates 
are based on a cursory examination of some seventy-five wills, 
in fifty-four of which the nature of the dispositions was suffi- 
ciently clear to enable some estimate to be made of the portion 
going to the successor in my sample. In making the estimates, 

1 The increase in commodity prices during the generation in 
question was about 85%, and the yield on Consols moved from 
about 2-8% to 4-4%. 

1 According to the Estate Duty figures for 1895-6, 204 persons in 
England left estates exceeding 100,000, and 119 exceeded 150,000; 
while the number exceeding 150,000 and 200,000 was respectively 
,215 and 145 in 1924-5, and 202 and 125 in 1925-6. The number of 
[persons dying at ages over forty-five was rather less in 1925 than 
l in 1895. 

F 161 


I made an approximate allowance for Death Duties, debts, and 
other deductions from the gross value of the estate; and I as; 
sumed that in every case property left for life only to a surviv- 
ing widow passed intact to the surviving beneficiaries. But I 
was not able to allow for the effects of the decease of some of 
the surviving children prior to that of the successor in my 
sample. Hence, in those cases, for example, where A leaves 
property to B and his issue, with remainder to C, and B dies 
without issue before C, I may have considerably under-esti- 
mated the ultimate inheritance of C under the will of A. In 
individual cases, my estimates may be far from the truth, and 
in the aggregate there is likely to be a considerable margin of 
error, though it could hardly be greater than about 15 per cent. 
Thus the proportion of the predecessor's estates bequeathed to 
the successors in the sample may be put at about 45 to 55 per 
cent., and, in the case of male successors only, at between 40 
and 50 per cent. The aggregate of these bequests may be esti- 
mated very roughly at 10 to 14 millions an average of over 
100,000 per successor. 

It is important to notice that the bequests, to which these 
estimates relate, are in the large majority of cases those from 
the fathers only, and are in any case from one predecessor only 
in the case of each successor; that they do not, for the most 
part, include property received under settlement; 1 and that 
they do not include gifts received from parents during the 
latter's lifetime. They form, therefore, only a fraction and 
of course a varying fraction in individual cases of the total 
gratuitous property which the successors in question received 
from all sources, by way of bequest, inheritance, settlement, 
and gift. 

The Legacy and Succession Duty figures indicate that pro- 
perty passing in the direct line from parents to children forms 
little more than half the total value of legacies and successions. 8 

1 I.e. property settled otherwise than under the will of the 

* In 1925-6, of the capital on which Legacy and Succession Duty 
was paid, only 44-3% was passing in the direct line, 15-3% between 



When allowance is made also for the exclusion of property 
gassing under settlement, it may reasonably be supposed that 
the total inherited property received by the successors in my 
sample was roughly double that shown in the above Table. 
Thus, while the property received from the fathers, under will 
or intestacy, appears in the aggregate to be about one-quarter 
of the value of the total property of the sons, the ratio of in- 
heritances from all sources is likely to be more nearly one-half. 1 
As regards the distribution of those inheritances one may fairly 

husband and wife, and 31% between other relatives. Bequests 
between spouses and in the direct line are, however, not liable to 
L.D. afnd S.D. when the estate within the deceased's disposition 
does not exceed 15,000, or when the legacy or succession is not 
more than 1,000. But legacies and successions from other relatives 
are generally not exempt for all unsettled estates over 1,000, 
though certain classes of property are exempt under certain cir- 
cumstances. If the legacies and successions liable to L.D. and S.D. 
are increased roughly in the same ratio as the value of estates over 
1,000 to those over 15,000 (i.e. by about 53%) the proportion of 
the total passing in the direct line becomes 52%, those between 
spouses account for nearly 18%, and those between other relatives 
24%. These proportions have not varied much during the past 
twenty years. 

The proportion of legacies and successions coming from fathers 
to sons only may perhaps be put at about 40% of the total, on the 
assumption that the proportion of the direct line inheritances from 
the mother is about the same as the ratio of women's property to 
the total in the case of the larger estates (25i% for estates over 
10,000 and 21|% for estates over 25,000). On similar lines, 
property passing from wife to husband may be put at about one 
fifth to a quarter of the total passing between spouses. 

1 Bequests to the male successors in my sample from their fathers 
are estimated roughly at 10 millions ( 1*5 millions). If we sup- 
pose that the proportions of their inheritances from various sources 
were about the same as those estimated above for all legacies and 
successions, then to this 10 millions we ought to add 50% to 60% 
for collateral inheritances, and another 30% to 35% for inheritances 
from mothers and wives, making a total of 18 millions or so re- 
ceived under the will or intestacy of relatives. To this should be 
added another, say, 15% for property received under settlement, not 
previously included making 21 millions in all as the total of 
their inherited property an average of over 200,000 per head. 



hazard that about half the sons in the sample had received up- 
wards of 50,000. It has already been noticed that the pro- 
portion of inherited property is very much higher in the case of 
the women's estates of which comparatively little can have been 
due to saving. 

The amount of property which the successors received by 
way of gifts inter vivas cannot be estimated. Gifts inter vivos 
are the unknown quantity which is always likely to upset the 
calculations of students of inheritance problems. It would be 
a mistake to imagine that they were of little importance before 
the rise of the Death Duties, for they are frequently referred to 
in the wills of a generation ago; and, in at least one cas$ in the 
sample, all the property had been disposed of in this way. 

8. The proportion of the predecessors' estates going to 
the successors in question was roughly estimated at nearly 50 
per cent.; but the average number of surviving children bene- 
fiting under their fathers' wills was about five in each family, or 
twenty-four sons and twenty-seven daughters in each ten 
families. 1 These figures, by themselves, are a sufficient indica- 
tion that equal division between the family is not the general 
rule among the richer testators. Not only was it common, 
among the richer predecessors in my sample, to bequeath a 
larger share to the sons than to the daughters; but frequently 
also the lion's share of the estate went to one particular son 
usually, but not always, the eldest. This was not only due to 
the custom of primogeniture among the landed aristocracy, 
who form but a fraction of the sample, but also to the intellig- 

1 This was the average in fifty-three cases, where information as 
to the number of children benefiting under the will was available. 
The average, weighted according to the size of estate disposed of, 
would not have been very different. In the case of forty estates 
over 50,000 it was 2-5 sons and 2*9 daughters per family. Compare 
the Registrar-General's figures relating to the number of children 
surviving in 1911 per fertile and infertile couple married before 
1851. The number was 470 of both sexes per 100 couples for all 
classes, and 418 in Social Class I (upper and middle classes). (See 
T. H. Stevenson in Stat. Jnl., May, 1920, discussing the Census, 
1911, Returns of Occupational Fertility.) 



ible desire of wealthy business men to perpetuate their economic 
power by leaving a large property intact in the hands of a single 
descendant, particularly when a minor portion of the estate is 
sufficient to provide for the reasonable requirements of the 
other members of the family. It is natural also that, where a 
business is to be disposed of, the controlling shares should be 
left to the one or two male members of the family who have 
shown most aptitude for carrying it on. 

As examples, we may cite the case of a chemical manufac- 
turer, with close on a million pounds to distribute between five 
sons and four daughters, who bequeathed 150,000 between 
eight of his children, and left the whole residue to the remain- 
ing son. A shipowner with 1,500,000, leaving one son and 
six daughters, having made liberal bequests to his widow and 
to charities, bequeaths nearly a third of the residue to his son. 
A brewer with over 400,000 to share between four sons and 
four daughters leaves over three-quarters of the net disposable 
estate to his eldest son. It is fair to say, however, that in this 
last case, at least, the other children had already been well pro- 
vided for by settlements during life. Here again, therefore, the 
absence of knowledge as to gifts inter vivos may lead one to 
wrong conclusions as to the extent of the contrast between the 
effects of freedom of disposition and the continental law of 
legitim. But there is little doubt that, among the very wealthy, 
equal division of the spoils among the family, irrespective of 
place and sex, is not the general rule. More usually one or two 
sons are found to be specially favoured as regards the inherit- 
ance of both capital and business opportunity. 

As we get down to the smaller estates, equal division be- 
comes more common, and this clearly for the reason that un- 
equal division would leave some members of the family rela- 
tively poor, whereas equal division may just secure a " com- 
petence " for each. There are cases, among the smaller estates, 
where the unmarried daughters are better provided for than 
the sons who can more easily earn their living. But my general 
conclusion on this matter, based on an examination of wills in 
this and the next sample, is that the smaller the estates the com- 



moner is equal division among the children, according to the 
principles of the legitim. 

In some eighty-seven cases, it is possible to classify roughly 
the chief occupations and the social status of the fathers of the 
successors in the first sample. The following is a summary : 


I. Peerage, Baronetage, and Landed Families . .15 
The average estate in this class was 580,000, 
and half the estates were between 200,000 and 
under 1,000,000. 

II. Financiers, Large-scale Manufacturers and Mer- 
chants 34 

(Including Textile and Allied Trades 9, Coal 3, 
Shipping 4, Brewers 4, Foreign and General 
Merchants 3, Newspaper Owners 2, Bankers 2.) 
The average estate in this class was 385,000, 
and half the estates were between 95,000 and 

HA. Unclassified Gentlemen of Means .... 5 
The average estate was about 65,000. Three of 
the estates were between 30,000 and 50,000, 
and one was over 200,000. 

III. Professions (including 3 clergy and 3 doctors) . 6 

Two of the clergymen had estates of over 
400,000. The other estates were relatively 
small 1,000, 4,000, 28,000, and one un- 

IV. Small-scale Manufacturers, Wholesale and Retail 

Shopkeepers 18 

(Including 4 Grocers and Wine Merchants, 3 
Drapers, 2 small Cotton Mill Owners, 5 other 
small-scale Manufacturers (cork, collars, bricks, 
soap, etc.), 1 Ironmonger, 1 Chemist, 1 Inn- 
keeper, 1 Hairdresser.) At least two fathers in 
this class had sprung from the ranks of manual 
labourers. The average estate (of fifteen cases) 


is about 8,000, but only six estates were ascer- 
tained to be over 5,000, and five were under 

V. Farmers 2 

The only estate found was 2,200 personalty. 

VI. Clerks and Minor Officials 3 

1 Stockbroker's Clerk, 1 Railway Policeman, 1 
Ship-measuring Surveyor (680). 

VII. Manual Working Class 4 1 

1 Anchor-smith, 1 Weaver, 1 Paper-mill Worker, 
1 Carpenter (?). 

Total 87 

The above classification is bound to be arbitrary in some re- 
spects, and does not cover the whole of the sample. But it is 
clear that about one in six of the fathers belonged to the aristo- 
cracy and landed gentry, one-half to the upper middle and pro- 
fessional classes (Classes II, HA, and III above), about one- 
quarter were small-scale capitalists and tradesmen (Classes IV 
and V), and not more than one-tenth at most were in the 
manual working class. 2 In all, about two-thirds of the sons may 
be said to have belonged to the same social class as their fathers. 


10. The composition of the second sample has already 
been explained. The results, as regards the predecessors* es- 

1 I have included here one that is uncertain. It was a very un- 
common surname, and the only birth entry recorded gave the father 
as a carpenter, but the son's Christian name was different though 
somewhat similar to the one mentioned in the probate (" Noah " as 
against " Nathaniel "). The son, described as a " surveyor," seems 
to have built up a fortune of 210,000 in a total life of forty-four 

4 I have previously remarked that, owing to the omission from 
the sample of persons whose property is chiefly settled, the landed 
classes and those living purely on independent means are likely 
to be under-represented. 



tates and the inheritances of the successors, are arrived at in 
exactly the same way as in the first sample and are presented 
in a similar manner. The remarks made in connection with the 
first sample as to the meaning and limitation of the figures 
therefore apply in this case also. This sample includes a wide 
range of estates ranging from moderate middle-class fortunes 
to really large properties, and it is therefore split up into three 
sections namely, successors with between 50,000 and 
200,000, those with 25,000 to 50,000, and those with 10,000 
(net personalty) to 25,000; and the results for each section are 
compared. The women's estates in the sample are dealt with 
separately, as they were selected in a different manner from the 
men's (see above, p. 152), and would in any case be under-re- 
presented, owing to the exclusion of settled property from the 
probate values. The following table (Table III) classifies the 
men successors in each of the three classes, according to the 
amounts left by their predecessors. (I should add that in 
eighty out of eighty-five cases, the father is taken as the " pre- 
decessor," in three cases the uncle, in one the wife, and in one 
the father-in-law.) The Table gives also the aggregate value of 
the successors' and predecessors' estates. Both totals are con- 
fined to property passing under will or intestacy, except that a 
relatively small amount of settled land is included in the esti- 
mated realty of the predecessors. 1 As in the case of the first 
sample, the figures for the portions of the predecessors' estates 
bequeathed to those in the sample are subject to a considerable 
margin of error, but such bequests represent, in any case, only 
a fraction of their total inherited property. 
This sample is more unsatisfactory to deal with than the first, 

1 Estimates of realty were made in the case of twenty predeces- 
sors of the male successors, and four predecessors of the women in 
the sample. The totals included in the aggregate of the predeces- 
sors' estates were 342,000 and 300,000 respectively. Land which 
was clearly not within the disposition of either predecessor or heir 
was not included, and one large landed estate worth about 300,000 
was omitted for this reason. The settled land included in the total 
of the predecessor's property is not likely to amount to more than 
5% of that total. 



both because the proportion of predecessors whose estates 
were not identified is higher than before (viz. 20 per cent, in 
the case of male successors as against 11 per cent.), and be- 
cause there is no means of estimating the number of men's or 
women's estates excluded from the sample, owing to the omis- 
sion of settled property. As regards the predecessors, whose 
estates were not found, one cannot assume that they all had 
nothing to leave, since in sixteen out of twenty-two cases their 
Christian names were not known, and only in one case was the 
year of death known, so that it was, in the majority of such 
cases, impossible to identify their estates in the Probate Regis- 
try. The probability is, however, that the majority left rela- 
tively small estates, under, say, 5,000. At any rate, the total 
with which the large estates of predecessors should be com- 
pared is the total of found and unf ound estates, rather than the 
total of found estates only always remembering that the 
number of persons with large settlements not coming into the 
sample may well exceed the number of unfound cases. 

We find, then, that about half the predecessors had left more 
than 30,000, in the case of sons with between 50,000 and 
200,000; more than 10,000, in the case of sons leaving 
25,000 to 50,000; and more than about 4,000, in the case of 
sons leaving 10,000 to 25,000. One-quarter of the prede- 
cessors in each of the three sections left over 77,000, 36,000, 
and 14,000 respectively. These estimates are based on the 
assumption that all undiscovered predecessors left less than 
5,000. On the same assumption, four in ten fathers of sons 
in the first class, nine In twenty fathers of those in the second 
class, and eleven in twenty fathers of those in the third class 
left estates of less than 5,000. Here again, as in the first 
sample, the inclusion of settled estates and gifts inter vivos 
would certainly reduce the proportions of relatively small 
estates. But taking the sample as it stands, about one-third of 
the sons in each class might fairly be described as " self-made 

In the case of the sixteen women successors, two left un- 
settled property in excess of 50,000, four between 25,000 and 




Amount of 
Predecessor's Estate. 
(Gross value passing 
under will or 
intestacy.) (a) 

Men Successors with Estates. 

All Men 

o 3 00^000 



net pers'lty 
to 25,000. 

Over 100,000 






i 7 














H( / ) 




Total known (or estim- 






Predecessor's estate not 






Total in Sample 









Aggregate value of suc- 

cessors' estates . 





Do. where predeces- 

sors' estates known 





Aggregate value of pre- 

decessors' estates 





Proportion of predeces- 
sors' estates bequeathed 
to successors (rough es- 





Ratio of these bequests to 

successors 9 estates (J) 

(rough estimates) : 
(i) Where predecessors' 
estates known . 
(ft) Assuming unfound 
predecessors' estates 





to be all under 






(a) But including settled land in certain cases (see text). 

(b) This estate included about 300,000 worth of settled land not within 
disposition of heir. This is not included in aggregate value of predecessors' 



50,000, and ten between 10,000 and 25,000. Eight were 
widows, and in every case the husband left over 10,000 un- 
settled estate, in six cases over 20,000* and in five cases over 
50,000. In the case of seven spinsters and one married 
woman, the fathers left over 20,000 in six cases, and over 
50,000 in four cases. The aggregate value of the sixteen 
women's unsettled property was 546,000, and the aggregate 
unsettled estate of their fathers or husbands was 3,800,000. 
Bequests from the latter source seem to have amounted to well 
over 800,000; this total excludes incomes for life and, of 
course, bequests from other sources, but it includes a certain 
amount of property settled by will which would not appear in 
the probate values of the women's estates. The high propor- 
tion of settled property held by women clearly makes a com- 
parison of bequests with probate values very misleading in this 
case. But it may safely be said that marriage and inheritance 
were by far the most important factors determining the pro- 
perty of all the women whose estates came into my investiga- 
tion; and common observation suggests the same conclusion 
with regard to women property owners generally. 

As regards the proportion of the predecessors' property be- 
queathed to the male successors on the basis of an admittedly 
inadequate examination of seventy-five wills and letters of ad- 
ministration, I put this proportion at 40 per cent, in the case of 
sons with 50,000 to 200,000, and 33 per cent, in the case of 
sons with 10,000 to 50,000. The estimated proportion in the 
case of sons with over 500,000 was 56 per cent., and for sons 

Notes to Table III (A} continued 

(c) In one case the will states that the son was provided for largely out 
of marriage settlement not included in probate value. 

(d) In two cases, the will mentions settlements under which children 
have benefited. In one of these cases the marriage settlement was 10,000, 
and testator mentioned that he had divided up most of his property before 

(e\ Marriage settlements mentioned in will, but not included in two cases. 

(/) Marriage settlements mentioned in will, but not included in two 
cases. The inclusion of these settlements (5,000, and 15,000) would 
haveraised these estates intothe5,000-lO,OOOand10,000~25.000cla8se. 

(0) Includes two estates not found but estimated at under 1,000. 

(A) Includes two estates not found but estimated at under 1,000. 

(0 Includes four estates not found but estimated at under 1,O 

(&) Includes eight estates not found but estimated at under 1. 

(0 See remarks in text. Estimates of bequests confined to those 
under will or intestacy of one predecessor only in each case. 




Amount of Predecessors 9 
Estates, excluding all 
Settled property. 

Women Successors with Estates. 

All Women 
up to 




2 M 

net pers'lty 
to 25,000. 

& Is) 
1 m 

& 1 s) 



Over 100,000 


1,000-5,000 . 
Under 1,000 

Total in Sample 









Aggregate value of Women's 
Estates (excluding Set- 
tled Property) . 
Aggregate value of Hus- 
bands* or Fathers* Es- 
tates (excluding Settled 
Property) . 





w = widow, m = married, s spinster. 
* Mother's estate 7,500 personalty. 

t Father's estate personalty only ; real estate existed but not found. 
+ Eight widows, one married, seven spinsters. 

with 200,000 to 500,000, 42 per cent. These percentages are 
all subject to a wide margin of error, but the decline in the pro- 
portion as we get down to the smaller estates is clearly marked, 
and may be taken as evidence that equal division between the 
family is more common among those with moderate and small 
fortunes than among the very wealthy. 

The average number of surviving children benefiting under 
their fathers' wills was nearly the same as in the previous 
sample namely, forty-five per ten families (rather more than 
twenty-four sons and twenty daughters [average of sixty- 
eight cases]). 

11. The following table (Table IV) 1 classifies fathers and 
sons according to occupation and social status, the method of 
1 See page 174. 


classification being much the same as in Table II relating to the 
first sample. Again the classification is bound to be arbitrary 
in certain cases, as, for example, in the distinction between 
large- and small-scale manufacturers and traders. The Table is 
self-explanatory and little need be said by way of comment. 
Of the ninety-three sons leaving between 10,000 and 200,000, 
some seventy-five or about four-fifths have been classified as 
belonging to the gentry, professional, and upper-middle classes; 
and about three-fifths of the fathers of the latter (fifty-two out 
of seventy-five) belonged to the same social class as their sons.. 
Eleven out of ninety-three fathers were artisans or labourers 
(i.e. " working-men ") at the time of their sons' birth, but, of 
these, two later became small property owners. One would 
naturally expect that the proportion of sons springing from the 
" working class " would be higher in the case of those with the 
more modest estates; and this is brought out clearly by the 
figures given in this Table, and in Table II relating to our first 
sample. Of sons leaving over 200,000 about one in twenty 
had working-class fathers, the proportion was one in thirteen 
in the case of sons leaving 50,000 to 200,000, one in nine of 
those leaving 25,000 to 50,000, and one in seven of those 
leaving 10,000 to 25,000. These figures are significant, but 
they hardly support Mr. Keynes' statement made with refer- 
ence to the pre-war epoch, when nouveaux riches were less 
common than to-day that "for any man of capacity and char- 
acter at all above the average " escape was possible from the 
ranks of the proletariat into the middle and upper classes. 1 
The figures for our sample suggest that not one in a thousand 
of the sons of working men (or wage earners) ever accumulates 
as much as 10,000.' 

12. I have analysed the occupations of sixty-two men in- 
cluded in our two samples, whose estates, as valued for probate, 
were more than ten times as large as those of their fathers. 
The results, for what they are worth, are given in Table V.* 

1 Economic Consequences of the Peace, p. 9. 
3 Perhaps 1 in 100 leaves 1,000 and over. 
' Page 176. 









left 50,000 
to 200,000. 

25,000 to 

10,000 to 

10,000 to 










(1) Landed Gentry and 
Titled Persons . 









(2) Professions . 
(3) Unclassified Gentle- 
men of Means . 










(4) Bankers, Stock- 

brokers,*and large- 
scale Manufactur- 

ers and Traders . 









(5) Shopkeepers and 
small-scale* Manu- 

facturers, etc. . 

- : 5 







(6) Farmers 

- ; 1 







(7) Clerks, Salesmen, 
Commercial Tra- 

vellers etc. 








(8) Artisans, Labourers 






Tota included. 

27 I 








(Not known) . 
Total in Sample 



29 | 29 



108 (1 


* Obviously there is no clear ividing line between these two classes 
(4) and (5). In making the distinction, I have taken into account nature 
of business and size of fortune left. 

(a) Includes one father who was a workman at time of son's birth, 
and became innkeeper. 

(b) Includes two fathers who were commercial clerks at tune of son's 

(c) Includes one father who was agricultural labourer and became 

(d) Not counting one who was workman and became innkeeper. See (a). 

(e) Not counting two who were commercial clerks. See (b). 
(/ ) Not counting one who was labourer. See (c). 

(g) Eleven were workmen at time of sons' births, including three 
agricultural labourers, one gardener, one coal-miner, one anchor-smith, 

Nothing of great importance, however, can be gathered from 
such analysis, both because the sample is too small to be neces- 
sarily representative, and because the description of a man's oc- 
cupation is not necessarily a good or clear indication of the 



ways in which he made his money. But two points of interest 
stand out, first, that with three exceptions commerce and in- 
dustry, rather than the professions, were the sources of these 
men's fortunes, and secondly, that those engaged in finance, 
marketing, and transport (thirty-four in all) considerably out- 
number those engaged in actual manufacture and production 
(twenty-three). 1 At least two of the latter owed the nucleus of 
their fortunes to the invention of new processes, but it seems 
that in the large majority of cases the fortunes were founded on 
a series of wise or lucky anticipations of demand, rather than 
on permanent contributions to industry, science, or art. In 
general, it is evident from theoretical considerations that big 
fortunes are most likely to be made in those lines of business 
which are the most speculative and in which there is the 
highest proportion of failures. Among these one may include 
professions such as law, literature, and art, where the average 
man makes little or nothing, but exceptional talent can achieve 
large rewards. Few trades and industries can be singled out 
as being in the nature of things particularly speculative and in- 
secure, and for this reason an analysis of the occupations of 
" self-made " men is by itself of limited interest and utility. 
Most businesses are speculative or not speculative according 
to the way in which they are managed. Clear examples in our 
samples of fortunes founded primarily on speculation are those 
of the six stockbrokers, and of one described as " coal-owner " 
whose most sensational fortune began with a speculation in 
colliery pit sinking. 

It is obvious, indeed, that mere " thrift " never made a poor 
man rich. And for " industry " to prove a philosopher's stone, 
it must take great risks and be combined with exceptional 
luck or exceptional talent. Both industry and thrift are cer- 
tainly necessary qualities for the accumulator of property, but 
they are not in themselves the chief source of great fortunes. 

1 The distinction between production and marketing is often, of 
course, not clear, for many manufacturers have their own whole- 
sale and retail distributors, and most large-scale producers perform 
themselves some of the functions of the middleman. 







Dealers in provisions, groceries, and agricul- 
tural produce 

Wine merchants 


Cocoa manufacturers 



Soap manufacturers 



Farmer .... 


Clothing, Textiles* Household Requisites 
Drapers, Hosiers, Furriers. 

i 5 


Boot and Shoe manufacturers . 


Collar manufacturers 


Textile manufacturers 


Wallpaper dealers . 
Cork manufacturers. 


Coal, Iron, and Engineering, Building 



Iron-works .... 

' 1 

Engineers (General, Marine, and Gas) 
Builders and Contractors . 

4 ! 
2 i 


II ., 

Merchants .... 

! 1 II 



Other Manufacturers 


Asbestos. .... 




Other Merchants, and Transport 


Foreign Merchants and Shippers 
Stationers and Paper dealers 
General and Unclassified merchants 



Printing and Publishing, Newspapers 


Printers and Publishers . 


Newspaper Owner . 
Finance and Investment . 



Stockbrokers and Financiers 


Foreign Investment and Developmen 
Pawnbrokers .... 


Professions ..... 


Surveyor .... 


Doctor ..... 

; 1 

Solicitor .... 




Of which Production and Manufacture 


Marketing and Transport 


Finance ..... 






* All those are included whose fathers' estates were less than one-tenth 
of the value of the sons' estates. Thirty-two were in the first Sample 
(over 200,000), and thirty in the second (10,000 to 200,000). 

No poor man who sticks as the large majority must, who 
have family responsibilities to the securer forms of employ- 
ment for his labour and savings, can hope to leave much 



property to his descendants, however great his talents and 
energy, however miserly his thrift. 

13. The hereditary character of the inequality of property, 
and the fact that the larger fortunes belong in the main to 
those who received the larger inheritances, is clearly indicated 
by the following table (Table VI). Lumping together the two 
samples investigated, the male successors are divided into six 
classes, according to the size of their estates, as shown in 
the Table. The correlation between predecessors 9 and suc- 
cessors 1 estates is now apparent. For example, while the 
average estate of the sons leaving over 300,000 is six and a 
half times as large as that of sons leaving 50,000 to 200,000, 
and thirty-seven times as large as that of sons leaving 10,000 
to 25,000, the average estate of their fathers (or other pre- 
decessors) is between six and seven times that of fathers of 
those in the second class (Class 4 in Table), and between 
twenty-three and twenty-seven times that in the last class (Class 
6 in Table). Comparing the same three classes, the ratio of 
the median * estate of the successors in the richest class to 
that in the second and third classes is about five to one, and 
twenty-seven to one respectively; the corresponding ratios for 
their predecessors 9 estates are about two and a half to one, and 
seventeen to one. 

According to my rough estimates of the portions of the pre- 
decessors' estates bequeathed to the successors in the sample, 
sons with over 300,000 inherited, on the average, eight or nine 
times as much as those with estates between 50,000 and 
200,000, and thirty to forty times as much as those in the 
10,000 to 25,000 class. 

As regards the proportions of their property derived from 
inheritance, for reasons which I have previously given, nothing 
definite can be gleaned from my figures. But the latter sug- 
gest that there is no very marked difference between the pro- 

1 The median estate is the one that is exactly half-way down the 
scale, i.e. half the estates lie above and half below the median. 
The median in the case of the predecessors' estates is only very 



t-V <** 

~ I 

i* 3 



1 I*' 5 


portions inherited by those in the different classes included in 
the two samples. This conclusion cannot, however, be ac- 
cepted without more definite evidence from other sources. 
But, if true, it indicates bat, though it is physically possible 
for those with very large fortunes to save a larger proportion 
of the income from them, this factor is counterbalanced by 
the greater incentive to earn and accumulate on the part of 
those with more modest inheritances. 

The following rough and ready classification is suggested by 
the results of our investigation that, of the men in the upper 
and middle classes at the present day, about one-third owe 
their fortunes almost entirely to inheritance (including gifts 
inter vivos), another third to a combination of ability and luck 
with a considerable inheritance of wealth and business oppor- 
tunity, and the remaining third largely to their own activities. 
Some in the second category but none in the first might be 
entitled to say, in the manner of Themistocles to the Seriphos 
islander, " If you had had my inheritance and I had yours, 
neither of us would have been wealthy." Many in the third 
category, though receiving little or no actual property by in- 
heritance or gift, had received a superior education or rela- 
tively expensive training. 

As regards the women, who now hold 25 to 30 per cent, of 
the property in these classes, it is probable that nearly all their 
fortunes are due to inheritance and marriage, augmented, no 
doubt, to some extent by saving out of the income from those 

The evidence of the two samples investigated supports the 
opinion that, in the great majority of cases, the large fortunes 
of one generation belong to the children of those who pos- 
sessed the large fortunes of the preceding generation. Even 
after the windfalls of the War inflation-period, the rich men 
who have sprung from parents with insignificant resources are 
almost certainly a minority of then* class. The attention which 
that minority attracts seems to be due to the fact that those 
who compose it are exceptional phenomena rather than numer- 
ous. It is obviously difficult, and it would appear to be 



comparatively rare, for a poor man to acquire much property 
by his own enterprise and saving within the limited period of 
his working life. Still rarer is it for a poor woman to do so 
unless a fortunate marriage be counted as the result of 
" enterprise " in the economic sense. On the other hand, it 
is obviously not difficult, and it would appear to be common, 
for the recipients of large inheritances not only to maintain 
them intact, but to enlarge them, particularly when those in- 
heritances bring with them opportunities for securing large 
earnings as well as interest. 

There is no doubt that, in the course of a few generations, 
the institution of inheritance has frequently enabled a reason- 
ably thrifty and industrious family to turn a small original 
capital into a large fortune. But within the space of one 
generation the shifting from class to class is normally not 
great. Our sample investigation did not go back more than 
one generation. Had it done so, we should probably have 
found that the proportion of grandfathers with little or no 
property was rather larger than that of the fathers, that of 
great-grandfathers still larger, and so on. Go back a hundred 
years or so, and there is little doubt that a considerable pro- 
portion of the ancestors of rich men living to-day would be 
found to have been comparatively poor. But, since poor men 
are far more numerous than rich, it is equally demonstrable 
and certain that, in the first place, only a tiny percentage of 
poor men living to-day would be found to have had well-to-do 
ancestors, and, secondly, that the descendants of the large 
majority of poor men remain poor throughout the generations. 

14. The economic history of representative middle-class 
families would be an interesting and profitable study; and 
the genealogist could be of considerable use to the economic 
historian. In the case of my own family where the genea- 
logy of the more obscure and less fortunate branches has been 
investigated, and particulars of some 250 wills and letters of 
administration granted to members of the family have been 
recorded I have been able to trace the fortunes of the differ- 
ent branches of the descendants of one ancestor through ten 



generations. 1 This is one of many families which became 
prominent about the time, of the Industrial Revolution, and it 
is fairly certain that the part played in its history by the luck 
of inheritance and marriage is not exceptional in its import- 
ance. The following brief review of its social and economic 
history may, therefore, have significant features of general 

At the opening of the seventeenth century the younger son 
of a bankrupt freeholder married the heiress of a small land- 
owner in the district now known as the Five Towns. There 
were three sons of the marriage, whose descendants are living 
at the present day. The fortunes of the descendants of these 
three sons have been radically different. The eldest of the 
three sons, and his descendants in the third and fourth genera- 
tions, inherited the bulk of the estates of his mother's family, 
about 240 acres in all, including a small pottery. The descend- 
ants of the youngest son (No. 3 branch) during the next three 
generations also acquired a considerable amount of property 
by marriage and inheritance. Indeed, in the third generation 
this was the most important and the most able branch of the 
family; it contained at least three prosperous potters and good 
business men who augmented their patrimony by marrying 
well and by buying up real estate in the neighbourhood. One 
was a coal- and land-owner on a considerable scale. But, in 
the next generation No. 3 branch fades into obscurity owing 
to a series of unlucky accidents. All the sons of the two 
wealthiest members died unmarried; the heiress of one married 
into No. 1 branch; and the bulk of the property of the others 
passed outside the family to relatives by marriage. Another 
member lost all his money in an unsuccessful pottery venture; 
while the eldest member of the branch contracted an unfor- 
tunate alliance. The descendants of the second of the three 
sons (No. 2 branch) were less fortunate in the way of marriage 
and inheritance, and possessed originally perhaps less ability 
than the other two branches. One grandson migrated in the 

1 Col. J. C. Wedgwood, History of the Wedgwood Family, and 
Wedgwood Pedigrees. 



early eighteenth century to the coast of Cumberland, where 
his numerous descendants became working potters, sailors, and 

It is in the last quarter of the eighteenth century, at the 
beginning of the Industrial Revolution, that the division of 
the present-day descendants of the original yeoman into " capi- 
talists " and " proletarians " may be foreseen. At that time 
No. 1 branch had inherited a small estate worth about 4,000 
or 5,000 and a growing pottery business; while, of the two 
younger branches, one was shortly to be deprived of the in- 
heritances it expected from its wealthiest members, and the 
other was already fast joining the ranks of the proletariat. 

During the opening stages of the Industrial Revolution the 
fortunes of one shoot of No. 1 branch were increased sub- 
stantially by a younger son of exceptional ability. Coming 
after four generations of yeoman potters, the latter revolution- 
ised what had once been a small-scale rural industry, and 
succeeded in amassing the then large fortune of about a quarter 
of a million pounds. In this achievement he was no doubt 
assisted to some extent by marriage with a cousin endowed 
with considerable means as well as brains. But it is chiefly to 
his industry and ability that the most well-to-do section of 
the family still owes its prosperity. Those of his descendants 
who have children living at the present day have in each case, 
during four generations, left estates ranging from 20,000 to 
100,000. With one possible exception, none of them dissi- 
pated their patrimony, but none greatly increased it. 

In another section of the elder branch Of the family, the 
descendants of an eccentric inventor, who himself appeared 
to have squandered a moderate inheritance, benefited consid- 
erably from one of his inventions. 

In the final result, of the living descendants of the elder 
son of the common ancestor, nine generations back, 75 per 
cent, remain in the middle and upper middle classes, having 
participated in inheritances of over 1,000 from the last gener- 
ation; and in the case of 45 per cent., the estates were not less 
than 20,000, and rarely more than 100,000. 



But of the 200 or more descendants of the second and 
third sons who are living in this country, certainly over 90 per 
cent, are numbered among the " lower middle class " and the 
" proletariat." Only one member of these two branches of 
the family has left an estate in excess of 500. 

Thus the fortunes of the different branches Were largely pre- 
determined by the economic position of the different members 
of the family at least five generations back, and to some extent 
by that of ancestors nine generations back. 





. 2,323,710 Wm. Lewis . 406,853 

2,222,471 Cuthbertson 401,533 

1,868,184 Mardon . 399,518 

1,653,304 Salomons . 388,412 

1,557,600 Nunburaholme 365,327 

1,084,704 Curzon . 354,894 

1,079,800 Everard . 348,073 

1,000,000 Tetley . 335,299 

953,531 Duncombe 334,080 

930,737 Gillilant . 329,221 

696,531 Carr. . 326,163 

688,578 Waugh . 322,010 

678,269 Moseley 314,562 

659,700 Harland* 313,006 

641,439 McAndrews 310,080 

635,135 Tillett . 303,476 

634,959 Livesey . 302,210 

555,751 Illingworth 289,060 

541,843 Tophamf . 285,961 

540,757 Fraser-Mackintosh* 284,260 

535,171 Methuen . 279,654 

518,819 Fremlin . 279,589 

496,644 Hull. . 278,140 

488,343 Horsley . 274,009 

484,687 Fieldsend . 272,897 

474,027 Ingram . 264,715 

453,039 J. Slater . 261,899 

453,011 Collinge . 260,855 

448,358 Schuster . 260,633 

437,550 J. C. Barlow 257,931 


Hambro . 
Salting* . 
Masham . 
Knowles . 

G. W. Foxt 
Rutland . 
iCenyon . 
Straker . 

Bowent . 
WooUand . 
Williams . 
Beaufort . 
Jackson . 
Masham* . 
Dempster . 
Turner . 
E. E. Sassoon 
Cooke . 

ols . 
Mappin . 
B. H. C. Fox 


Adam . . . 257,808 

Charters . . 225,817 

Ellisonf . . . 257,758 



Bridge . . . 257,061 

Huggins . 


Tillett . . . 252,762 

Burness . 


R. E. D. Sassoon . 252,420 



Porritt . . . 251,769 

Rowntree . 


St.Georget . . 251,678 



Atkin . . . 250,433 

Hacking . 


Doverdale. . . 250,000 

G. C. Robertson 


W. L. Davies . . 248,485 

Breskal . 


Kellyf . . . 245,147 



Pollexfen-\ 244382 
Bastard/ ' ' 244 > 382 



Osborn . . . 238,968 



Glanfield . . . 233,461 



Gurteen . . . 230,571 



Gold . . . 229,682 

DePeyer . 


May. . . . 229,324 



Torbock . . . 228,726 

Storeyf . 


Boake . . . 227,881 



* Women. 

t Nothing known regarding predecessor's estate. 




Akroyd . 197,308 

Wedd 65,609 











J. Barlowf 


Enthoven . 






Day . 






Chambers . 








Amphlett . 
















Brightwell . 




Harwood . 








Huggan . 
Carlisht . 




Garrod . 








Distance . 










Wilson . 


Dodwell . 




Garnett . 




Kinghorn . 


Topham . 


Cannon . 


Gibbons . , 


Bedford . 




Driffield . 


H. M. Davies 




F. Hawkesf 
Bloomer . 


Fry . . 





Haslamt . 




Bullock . 




Clarkt . 




Griffiths . 


R. E. Cooke 


C. Greent . 




Fausset . 


Huxley . 




Prestont . 






Colegrave . 


E. Berryt . 






Dillonf - 








F. L. Hodges 


LeTall . 


Haggard . 


Garrett . 


H. Clayton 


Horsfall . 


Thackrah . 
P. Smith . 


t Nothing known regarding predecessor's estate. 


Mrs. J. M. Churton 139,948 
Dame Mirrielees 106,347 
Dame M. A. Horlick 45,866 
Miss J.E. Black 27,597 
Miss F. W. Barnard 27,510 
Miss O. Harrison 27,225 

Mrs. M. W. Elgood . 18,852 
Miss M. Van Heythuysen 17,252 
Mrs. Charlotte Y. Corfield 15,355 
Miss C. M. Belcher . 15,311 
Hon. Bertha De Torre 
Diaz ... 14,334 

Miss E. Chamberlen 24,357 
Hon. Mrs. A. Fitzwilliam 23,413 
Miss D. L. Gilpin-Brown 19,241 

Lady Constance C. E. 
Russell . . . 13,319 
Lady Frances Bushby . 10,553 




1. THE Estate Duty statistics relating to the distribution of 
property at different ages throw light indirectly on the influ- 
ence of inheritance. In recent years the Inland Revenue 
authorities have published not only the number and value of 
estates subject to Death Duties, but have also classified them 
into age-groups, according to the age at death of their pos- 
sessors. These figures have been employed both by inde- 
pendent authorities and by the Board of Inland Revenue itself 
to estimate the distribution of property among the living, as 
well as its aggregate value. 1 

They can also be used, as I have used them here, to compare 
the distribution of property within each age-group, and as 
between the older and younger sections of the population. 

The Estate Duty figures only cover estates of over 100 in 
value, and this 100 limit would, of course, cut off different 
proportions of the people at different ages. But the number 
of estates below 100 (though not their aggregate value) can 
be estimated in each case, since the total population in each 
age-group is known, and the number of estates over 100 can 
be estimated. 

It is, indeed, desirable to base one's estimates on the average 
of a number of consecutive years rather than on the figures 
for a single year. For, in the younger age-groups, where 
decedents form a relatively small sample of the living, chance 
variations from year to year in the number and value of the 
larger estates are not negligible. Again, there are technical 
discrepancies in the official figures as between the stated num- 
bers and amounts, which only cancel out roughly over a 

1 See Appendix to Chap. I, where the method is described and 



number of years. 1 It is also desirable to choose a period 
when property values were fairly stable. 

2. Using the average of the figures for the four years 
1911-14, and also the average of the figures for the two years 
1923-4 and 1924-5, I have constructed a series of curves, 
showing, both for the pre-war and the post-war periods, the 
proportions of the people in five different .age-groups owning 
property of different values. 1 The age-groups chosen start 

1 The figures in the " Numbers " column of the Estate Duty 
statistics refer in each case to the estates reviewed in the year in 
question. Before 1919 the figures of Values referred to the total 
values of the estates reviewed in the year, except where the value 
was only disclosed approximately in the first instance. After 1919 
the capital included in the Values column is that on which Estate 
Duty was actually paid, so that where the duty is paid by in- 
stalments the capital on which subsequent instalments were paid 
would be included when they were paid. Thus, neither under the 
pre-1919 system nor after 1919 do the Estate Duty statistics repre- 
sent accurately for any one year the capital passing in that year. 
But, in the official opinion, the lack of strict correspondence in the 
figures to the facts of the year in question does not seriously affect 
their comparability. (See 63rd Report of Inland Revenue, p. 18.) 

3 See Charts I and II at end of chapter. 

In the first series of graphs, I have plotted the proportions of the 
population in each age-group owning estates of so many and 
over, against the values of the estates in question. Both scales 
are logarithmic so that the graphs are drawn up by a modification 
of Pareto's method. But here they are convex curves, not straight 

In constructing the estimates, the Registrar-General's figures for 
the death-rates of " Social Class I " 1910-12 have been applied to 
estates over 100 in the period 1911-14. In the period 1923-5, it 
has been assumed, in the absence of data, that the death-rates of 
males in the upper and middle classes bore the same proportions 
as in 1910-12 to the general death-rates in each age-group. But 
the reciprocals of the general death-rates for women have been 
applied to women's estates. The sex of the owner was not dis- 
tinguished in the 1911-14 figures. The relative age-distribution 
of the population was assumed to be the same in 1914 as in 1921 
(see Appendix to Chap. I) . Since making the calculations for the 
post-war period, the statistics for 1925-6 have been published. I 
have not done all the calculations over again so as to include the 
later year in the average; but, in the two age-groups (35-44 and 



with those thirty-five to forty-four years old and end with 
those seventy-five to eighty-four years old. I should like to 
have included the twenty-five to thirty-four age-group, but the 
discrepancies alluded to above made the figures in this case 
too unreliable. 

There are two results which seem to have significance for 
our purposes first that the curves of distribution at the differ- 
ent ages are almost identical in form, and second that the 
relative inequality of distribution within the richest tenth of 
the population (a section owning about nine-tenths of the 
aggregate property) is very nearly the same at each age. 1 The 

65-74) I found that the inclusion of the 1925-6 figures did not 
alter materially the results obtained from the average of the 
previous two years. 

1 For a theoretical discussion of statistical tests of " absolute " 
and "relative" inequality, see Dalton, Appendix to Inequality of 
Incomes. Certain measures of dispersion for the estates of the 
richest tenth of the population in the different age-groups are as 
follows (note particularly also the measures of " Skewness " in- 
dicating the similarity in plan of the curves of distribution): 

Distribution of Property 
persons composing rich< 
of population at ag 

r among 
*st 10% 









Relative Quartile De- 
viation : 
(Qi - Qa) 

(q a + qj 






Relative Mean Devia- 
tion from Arith. Mean 








Quartile Measure of 
Skewness : 
(q a -m)-(m~q 1 ) 





(q 2 -m)+(m-q 1 ) 

Relative Quartile De- 
viation within sec- 
tion comprising Rich- 
est 5% of the popula- 
tion in each age- 









significance of this observation is, perhaps, made more plain 
when the population in each age-group is divided up into a 
series of sections or classes, and the minimum and average 
estates of each section are compared. It is then seen that 
within the richest tenth of the population, they increase with 
advancing age in approximately the same ratio. (See Chart 
III at end of Chapter.) The similarity is still greater within 
the top twentieth of the people. For example, in the period 
1911-14, the minimum estate of the section comprising the 
richest thousandth (0-1 per cent.) of the people aged seventy- 
five to eighty-four was 6-6 times that of the same section 
aged thirty-five to forty-four; while the increase was very 
nearly the same, namely 6-9 times, in the case of the minimum 
estate of the section comprising the richest twentieth (5 per 
cent.) of the people. The corresponding increase in the case 
of the same sections between the same ages, in 1924, was 
4-65 times * and 4-8 times respectively. 

3. Of course, these figures apply not to the same people 
at different ages, but to different sections of the same popula- 
tion. Consequently, no valid inferences can be drawn as to 
the actual rates at which property tends to accumulate with 
advancing age among different classes of the people. Never- 
theless, the similarity of the curves of distribution among the 
older and younger sections of the population is, I think, sug- 
gestive, for the following reason. We know that the same 
factors are at work determining the distribution of property 
at different ages in the life of adult individuals. But each of 
those factors has not an equal importance at different ages. 
The direct influence of inheritance and gifts in shaping the 
distribution of property must be greater in the younger than 
in the older sections of the population. Little property is 
received by way of inheritance or gift after the age of about 
fifty-five. In the Probate Registry inquiry, for example, I 
found that over nine-tenths of the estates were inherited before 
the age of fifty-five, and two-thirds between the ages of thirty- 

1 In the case of the richest 0-2%, figures for the richest 0-1% not 
being available. 



five and fifty-four. 1 Consequently, a higher proportion of the 
property in the age-groups, say fifty-five to eighty-four, must 
be due to saving and factors other than inheritance and gifts 
than is the case at the ages from thirty-five to fifty-four. Hence 
it is significant that the curves of distribution at the latter 
ages, when the bulk of gratuitous property is received, should 
be of the same pattern as the curves of distribution at the 
older ages, when any increase in estates must be largely due 
to other factors. It strongly suggests that the indirect influ- 
ence of inherited wealth, in determining the extent of one's 
ability to save, is very considerable. If this were not the case, 
and differences in personal characteristics were the chief in- 
fluence determining the distribution of "saved" property, 
then one would expect to find the curves of distribution in the 
older age-groups exhibiting marked differences from those 
in the younger age-groups. For, as Professor Pigou has said, 
in his criticism of Pareto's " Law," " inherited property is not 
distributed in proportion to capacity. . . . There is clear 
evidence that the physical characters of human beings and 
considerable evidence that their mental characters are dis- 
tributed on an altogether different plan." * 

Another feature of property distribution pointing to the 
same conclusion is that women's property is distributed in 
much the same proportions as that belonging to men, although 
fresh accumulation must account for a much larger proportion 
of the latter than of the former. In the Appendix to Chapter 
I, I called attention to this similarity in distribution as regards 
the property held by the two sexes. 8 Relative distribution 

1 My calculations were based mainly on inheritances in the direct 
line of descent. If all collateral bequests and those between spouses 
were taken into account, the average age at inheritance would be 
raised. But, on the other hand, if gifts inter vivos were included, 
the average age of recipients of both gifts and bequests would be 

* Economics of Welfare, pp. 608 and 609. 

* See figures given in Table IV (c), Appendix to Chap. I. The 
comparison holds good, in spite of the doubt as to the exact extent 
of the property held by both sexes in estates of under 100 de- 
clared value. 



imong women Is slightly less uneven than among men, but the 
difference is not great. For example (in 1924) the richest 
1 per cent, of adult men (over twenty-five years of age) 
are estimated to own 60 per cent, of the aggregate 
property held by their sex, while the same percentage of 
adult women own 56 per cent.; the richest 5 per cent, of 
men hold 81 per cent., and of women 80 per cent.; the 
richest 10 per cent, of each sex are estimated to hold 874 
per cent. 

4. Two other observations may be made on the fore- 
going figures. In the first place, the estates of all classes 
within the richest 20 per cent, of the population (comprising 
the owners of more than nine-tenths of the property), increase 
in approximately the same ratio up to the age of about sixty; 
and continue to increase, but at a much slower rate, from 
the age of sixty on. But the decline in the rate of accumula- 
tion at the more advanced ages is much more marked in the 
case of the poorest classes. According to the post-war figures, 
there appears to be little accumulation after the ages of fifty- 
five to sixty-four, so far as the poorest nine-tenths of the 
people are concerned, and actual decumulation among the 
poorest 80 per cent. But, among the richest 10 per cent, the 
average estate at ages seventy-five to eighty-four was nearly 
double that at ages fifty-five to sixty-four, in 1913 -and 50 
per cent, greater in 1924. 1 

The reasons, both for the general decline in the rate of 
accumulation after the age of sixty, and for the greater decline 
among the poorer classes, are not far to seek. The fact that 
very little property is inherited after the age of fifty-five or so, 
and that a man's active working life ceases, in most cases, ten 
years or so later, and the growing practice among relatively 
old men of making gifts to the young these things sufficiently 
explain the decline as regards the upper and middle classes. 
And it is evident that, among the poorer and working classes, 

1 The reader must bear in mind the warning given above that 
these figures relate to different sections of the same population, 
not to the same people at different ages. 



those who have saved while they earned, 'frequently have to 
spend their savings in old age. 

It may be noticed as an interesting fact though not per- 
tinent to our present inquiry that the rate of accumulation of 
property with advancing age is, throughout all classes, less in 
the post-war years than in the pre-war period. The cause is 
to be found probably in the decline in private savings, and 
in the growth of gifts inter vivos. 

In the second place, since the property of the poorest nine- 
tenths of the population increases little or not at all after 
the age of sixty or so, whereas that of the richer classes in- 
creases up to the most advanced age, fresh accumulations 
appear, on the whole, to be more unequally distributed than 
inherited wealth. But as regards the better-off classes, form- 
ing* say, the richest tenth of the population and owning the 
bulk of the property, this does not seem to be the case, for, 
as observed above, within these classes the relative inequality 
of distribution is much the same in the older as in the younger 
age-groups. In other words, the inference is that, on the 
whole, there is no marked difference in the proportion of 
property derived from inheritance and gift as between large 
and moderate estates, among owners of the same age; but 
since the owners of the larger estates are on the average rather 
older than the others and have therefore had more time in 
which to accumulate, they are likely, from this fact alone, to 
have inherited a rather smaller proportion of their total 




(NOTE. The figures in the following tables are estimates arrived at 
by interpolation from figures based on the Estate Duty Statistics for 
the four years 1911-14, and the two years 1923-4 and 1924-5. Obviously 
there can be no claim to great accuracy.) 






Women only 





25 to 34 
35 to 44 
45 to 54 
55 to 64 
65 to 74 
75 to 84 








All 35 to 84 years . 









The Richest Per- 
centage of the 
People at Ages : 

Own Estates in 

Excess of : 
Richest 0-1% (1 in 
0-2% (1 in 500) 

0-5% (1 in 200) 


25 to 




35 to 


45 to 














N.B. The italic figures in brackets under 
proportionate increase with advancing age 
at ages 45 to 54 being taken as 100. 

G 193 


(b) ENGLAND, 1923-5 

The Richest Percentage 
of the People at Ages : 

35 to 


45 to 



65 to 



Own Estates hi Excess of : 
Richest 0-2 (1 hi 500) . 

,, 0*5%(lin200) . 

l%(linlOO) . 


















2,82 } 
















(a) ENGLAND, 1911-14 

Section of the 
People at Ages : 

25 to 34 35 to 44 



45 to 54 

55 to 64 

65 to 74 

75 to 84 

Richest 0-1%* 
Next 0-1 % . 

Next 0-3% . 
Next 0-5% . 
Next 1 % . 
Next 3% . 

L Next 5% . 








(J5 & 





V 5,580 

* Owing to the fact that estates at top of scale are relatively few and 
that one or two " fluke " estates passing at death have a considerable 
effect OB the average, the figures of average estates of the richest class 
distinguished, particularly in the younger age-groups, are not as reliable 
as the others. 



(6) ENGLAND, 1923-6 

Section of the 
People at Ages: 

25 to 34 35 to 44 



45 to 54 

55 to 64 

65 to 74 

75 to 84 

/'Richest 0-2% 
Next 0-3% . 
Next 0-5% . 
Next 1-0% . 
Next 3% , 
Next 5% . 
Next 10 %f 























1 5,330 



* The figures for age-group 25 to 34 are not reliable, as estates left by 
the dying in this case in two years are too few to be a sufficient basis for a 
satisfactory estimate. 

t The figures for this class are only very approximate. The increase 
in estate from 65-74 to 75-84 is probably due to the fact that it is chiefly 
the wealthier persons in this elass who live beyond 75. 



Ik* I s - i i 

|M ? i 
s ^ *< s . ^ 




i i i i 












I 1 





X% t/ttn 
on ettotrs '** 
cvrm sAotf ff>e 
f ett Ofak**t tfte 
ach eye. f rev ft 


hm 9 f X 








/ CUhrvrf Oou*t 

w7QA>*Mf tffcf* Mr /tut ttgnttaf efuolftoprtien- 







.1. In the last three chapters, we examined the available 
evidence regarding the degree to which hereditary inequality 
of property persists in Britain to-day. Though the statistical 
material is scanty, it is at least clear that, in spite of the eco- 
nomic and social upheavals of the past decade, unequal in- 
heritances remain a most important factor in shaping the 
distribution of wealth. 

Looking backwards to earlier times, it seems difficult to 
over-estimate the influence of a system of inheritance on the 
history of social classes. In the feudal ages inequalities of 
wealth were produced and maintained by laws which enforced 
the subordination of the majority class to an aristocracy of 
priests and nobles. Within that system of law and custom, 
a man's economic and social status was definitely hereditary 
and fixed. The abolition of serfdom, and the growth of per- 
sonal freedom and political democracy, has weakened but not 
abolished hereditary class divisions. For the legal right of 
bequest and inheritance of the non-human sources of wealth 
remained and has proved effective in maintaining a hereditary 
concentration of property. When villeinage ceased in Britain, 
it was not without full compensation to the lords of the manor, 
in the form of money rents and fines, so that had other eco- 
nomic conditions remained stable the new freedom could not 
have brought much increased prosperity to the peasants. 

Fortunately, from many points of view, the discovery of 
new lands and changes in the value of money have been 
two great factors which, throughout history, have served to 
modify the hereditary contours of society. But the extent of 
that modification, as regards the distribution of material 
wealth, is not so great as has sometimes been imagined. The 
great fall in the value of money during the sixteenth century, 



which followed the working of the silver mines in the New 
World and the debasement of the currency, and which was 
chiefly responsible for the dissolution of feudalism, was ob- 
viously beneficial to many traders and to certain classes of 
the peasantry, whom it enabled to discharge their fixed mone- 
tary obligations more easily and thus to retain a larger share of 
their produce. And it is for this chief reason that by the end 
of the sixteenth century, there was a comparatively prosperous 
yeoman class midway between landlord and tenant, from 
whose ranks sprang in the eighteenth and nineteenth cepturies 
many of the captains of industry. 1 But this section of the 
peasantry was only a minority; as regards the majority, the 
effect of the fall in the value of money was to diminish the 
security of their tenure without greatly diminishing the labour 
cost of their rent. Throughout the three centuries of transi- 
tion, from Henry the Eighth to Waterloo, measures, first illegal 
and later legalised, were employed by the landlord class to 
retain their economic power. Increased fines and rents, whole- 
sale evictions and enclosures followed the depreciation of 
money and marked the dawn of the capitalist system. Thus, 
in the course of time, the great majority of the descendants 
of the serf caste have become the landless " proletarians " of 
to-day, and only a particularly fortunate minority have been 
able to establish themselves as men of property. 

At the present time says Professor Cannan "there are 
no clear-cut classes, no definite boundaries over which no 
man may step. The able members of the poorest class are 
constantly rising to the top, and the particularly incompetent 
members of the richest class are constantly falling to the 
bottom; but, all the same, among the bulk of mankind there 
is a continuous hereditary transmission of inequality of in- 
come, the importance of which it is foolish to ignore." a 

The institution of inheritance is not indeed the sole source 
of this result, 8 but it extends the magnitude and range in 

1 E.g. Strutt, Wedgwood, Peel, Cartwright. 

a Wealth, p. 208. 

' See, for example, remarks in Chaps. II and HI. 



time of hereditary inequality far beyond that which would 
result from unequal earning-power due to differences in here- 
dity, training, and early environment. 

2. Judged by its effects on distribution, our system of 
inheritance is clearly indefensible on economic grounds. Can 
economic justification be found in its effects on production, or 
is the institution to be justified on other non-economic 
grounds? These are the questions to be discussed in this 

In practice, the essence of the English system of inheritance 
is the right of a man to bequeath his property to anyone he 
likes. There are, we have seen, legal limits to the length of 
time after his death during which a man may control the 
. disposition and enjoyment of his property, and to the nature 
of that control. But in general there are no legal limits to 
the circle of persons who may benefit under his will or to 
the extent of their benefit. The laws determining who shall 
inherit in cases of intestacy are of little economic importance, 
since very few rich people die intestate. In most other coun- 
tries, however, where the portion of an estate which may 
be freely bequeathed is restricted by law, the right of inherit- 
ance, as distinct from the right of bequest, is of more im- 

Now the usual justification of inheritance, based on con- 
siderations of social ethics, is that the father of a family is 
rightly expected to support his wife and children while he is 
alive, and that when he is dead it is right and proper that the 
latter should continue to derive support from any property 
which he may have accumulated. But it is important to realise 
that this claim of family dependants, whether just or unjust, 
reasonable or unreasonable, is not formally recognised by 
English law, except in the rare cases of intestacy. It is indeed 
true that the large majority of English fathers and mothers 
do bequeath most of their property to their surviving spouses 
and children and, in the exceptional cases where they do not, 
the will is usually contested in a court of law, where there is 
a natural predisposition to consider that the testator must 



have been mad or unduly influenced. But it is still possible 
for Englishmen who can be proved to have been not mad but 
merely bad to " cut off their children with a shilling.' 9 Such 
cases are, however, tolerably rare, so that our laws of in- 
heritance seldom meet serious criticism on these grounds. The 
average father in practice interprets the right of bequest as 
the right to endow after his death those whom he supported 
during his life. 

3. The only non-economic argument in favour of freedom 
of bequest is the idea now gone out of fashion that a man 
has the " natural right " to do as he pleases with his own, even 
after his death. Possibly it was this idea that was responsible 
for the gradual discarding of the legitim principle in England. 
Yet when Englishmen were living closer to Nature than they 
are to-day, the idea would have seemed very unnatural; it 
would appear equally so in many modern countries. 1 

I have previously remarked that property can quite well 
exist without the right of bequest being attached to it. a And 
since no one has yet succeeded in finding a satisfactory justi- 
fication for property that is not the result of personal service, 
it is certain that the institution of property would stand more 
securely, if the right of unlimited bequest and inheritance were 
not attached to it. 8 

1 Cp. Dalton, op. cit., p. 288, " Many Englishmen, who have not 
studied comparative law, will think it natural that the ownership 
of their property after their death should be governed by then- 
last will and testament. Most Frenchmen, in like case, will think 
it natural that the operation of their will should be subject to the 
law of the Legitime. But many Indians, far from thinking the 
disposition of property by will to be natural, will find great diffi- 
culty in understanding what the mere idea of a will signifies and 
implies. Indeed, Maine has pointed out that to the vast majority 
of mankind throughout recorded history the idea would be quite 

3 See Chap. U, page 76. 

* Cp. Laski, Grammar of Politics, p. 187 and pp. 525-6. "The 
only principle upon which the possession of private property can 
be justified is the performance of function. I own because I serve; 
I cannot own because someone else has served. ... It follows 
that there cannot exist an exclusive right of bequest. 1 " 



Mill, who did not shrink from applying Utilitarian principles 
to matters which most economists of his time preferred not 
to question, agrees with them that the right of bequest forms 
"part of the idea of private property," but remarks that 
" property is only a means to an end, not itself the end. Like 
all other proprietary rights, and even in a greater degree than 
most, the power of bequest may be so exercised as to conflict 
with the permanent interests of the human race." 9 1 

4. The legal right of the next of kin to inherit a pan at 
any rate of the deceased's property observed in cases of 
intestacy in England .and in all cases in other Western Euro- 
pean countries is often thought to have some sort of moral 
justification, particularly where the next of kin are the widows 
or children of the deceased. They had a moral claim to his 
support during life, it is argued, and they have a moral claim 
to the support his property gives after death. One is ex- 
pected to conjure up a picture of a penniless widow, or of 
orphans in their 'teens. Their father's hard-earned savings 
have rightly been put by for their benefit. Have they not a 
moral claim to these savings? Certainly no wise State, con- 
fronted with such a case, would deny that claim; it would 
rather hope that the savings were sufficient to pay for the 
orphans' upkeep, lest the ratepayers have to contribute. 

But it is nonsense to suggest that the great bulk of the 
property bequeathed and inherited goes to sustain indigent 
widows and young children, who cannot fend for themselves. 
Most of the widows of rich men have, in fact, some property 
of their own; and the large majority of penniless widows have 
practically penniless husbands from whom' they will never 
inherit anything substantial, whatever the law on the subject. 
Again, the average age of children who survive well-to-do 
parents is somewhere about forty. The description "chil- 
dren," for inheritors in the direct line of descent, is therefore 

1 It did so, he thought, when property was entailed for long 
periods, and when funds were bequeathed to educational institu- 
tions under conditions as to what should be taught. Principles, 7th 
edn. Vol. I, Bk. II, Chap. II, p. 273. 



apt to be misleading. The sons who inherit large estates are 
usually men rather beyond the prime of life, at the time of 
their inheritance, whose parents gave them in youth an ex- 
pensive training, and who were already receiving before their 
inheritance a considerable income whether from earnings and 
savings, or from gifts of property made during their parents' 
lifetime. The advent of a large inheritance in such cases is only 
likely to deter them from exerting themselves to earn a living. 

But even if all children were too young or otherwise unfitted 
at the time of their parents' death to earn a livelihood by 
their own exertions, would our sense of justice or of social ex- 
pediency demand that they should be supported at a scale of 
living in proportion to their parent's property? Has the child 
of a man with 100,000, for example, a fair claim to inherit 
one hundred times as much as the child of the man with 
1,000? For the idea that such a claim is fair and reasonable 
appears to underlie the Continental law of legitim and the 
English law of inheritance in cases of intestacy. The only 
argument for such a claim, on the grounds of social equity, 
would appear to be that the parent has accumulated property 
with the expectation that his children will inherit, that the 
children have been brought up with the expectation that they 
will inherit, and that it is unfair and causes unhappiness to 
disappoint such established expectations. Yet clearly such 
expectations are entertained because of the laws of inheritance, 
and if those laws did not exist, neither would the expectations 
exist. We are still faced with the question of whether or not 
such expectations are fair and reasonable in themselves, apart 
from the existing law on the subject. 

Personally I agree with John Stuart Mill that children may 
reasonably claim from their parent that he should " provide, 
so far as depends on him, such education and such appliances 
and means, as will enable them to start with a fair chance of 
achieving by their own exertions a successful life. To this 
every child has a claim; and I cannot admit that as a child 
he has a claim to more. There is a case in which these obliga- 
tions present themselves in their true light, without any ex- 



trinsic circumstances to disguise or confuse them : it is that of 
the illegitimate child. To such a child it is generally felt that 
there is due from the parent the amount of provision for his 
welfare which will enable him to make his life on the whole a 
desirable one. I hold that to no child, merely as such, any- 
thing more is due than what is admitted to be due to the 
illegitimate child; and that no child, for whom this much has 
been done, has, unless on the score of previously raised ex- 
pectations, any grievance, if the remainder of the parent's 
fortune is devoted to public uses, or to the benefit of indi- 
viduals on whom in the parent's opinion it is better bestowed.' 9 1 

If this view is accepted, it follows that, in the large majority 
of cases where the sons of well-to-do parents have reached 
maturity before the latter's death, and have previously received 
education, appliances, and means, which were not insufficient 
on grounds of expense to give them a fair start, there can be 
no reasonable claim to any inheritance in addition except 
on the score of previously raised expectations, for which the 
existing law and custom must be chiefly responsible. 

5. It follows also, as Mill was careful to point out, 8 that 
the law of legitim is riot necessarily fairer than the English 
right of freedom of bequest, except in the indirect result that 
the former probably leads in practice to rather less inequality 
than the latter. It may perhaps be desirable to have some 
legal safeguard against the unlikely event of the young or 
disabled children of a well-to-do parent being completely dis- 
inherited by the latter's will. But the legitim law does far 
more than this when it decrees that each child must have a 
fixed proportion of its parents' estate, whatever the size of that 
estate. Thus, for example, in the supposed interests of equity, 
French law prohibits a millionaire with three children from 

1 Principles, Vol. I, Bk. II, Chap. II, p. 277. 

a Mill, op. cit., pp. 497-597. " The only reason for recognising 
in the children any claim at all to more than a provision sufficient 
to launch them in life and enable them to find a livelihood, is 
grounded on the expressed or presumed wish of the parent; whose 
claim to dispose of what is actually his own, cannot be set aside by 
any pretensions of others to receive what is not theirs." 



bequeathing more than one-quarter of his fortune to public 
or philanthropic purposes. Those who supported the legitim 
as more democratic than the English system, forgot that the 
practical argument against the custom of Primogeniture in 
our landed families is not that it left the younger sons too little, 
but that it left the elder sons too much. 

6. If it is difficult to uphold the right of children to in- 
herit, by reference to the dictates of abstract justice, it is still 
more difficult to reconcile the right of inheritance by persons 
other than children or spouses. Here there is often no ques- 
tion of satisfying or denying established expectations. There 
is no doubt some recognition of this fact in French law, which 
only enforces the legitim for descendants or ascendants in the 
direct line; and both in English and French systems of taxa- 
tion, inheritances and bequests by strangers and collateral 
relatives are taxed at a higher rate. But, in cases of intestacy, 
both under English and Continental laws, the property may 
pass to quite distant relatives. Of course, these cases of in- 
testacy are in practice rare among well-to-do people and 
comparatively unimportant. But the law on the matter is 
significant as indicating how strongly fegal practice is still in- 
fluenced by the customs of earlier times, when families or 
clans were the chief social units, and had not been submerged 
in a common loyalty to the nation. 

The law of inheritance, in cases of intestacy, is indeed some- 
thing of an anachronism in modern England, where voluntary 
communism within the family is generally confined to parents 
and children and nearly always stops short of relatives more 
distant than brothers and sisters. For this reason, one cannot 
conceive that any hardship or sense of injustice would be 
caused by adopting Bentham's proposal that, where a man 
dies intestate, leaving no near relatives, his property should 
escheat to the State. According to Bentham, the near rela- 
tives who would have a right to succeed, should be confined 
to spouses, direct descendants, parents, and brothers and sisters. 
Mill, however, would exclude collateral inheritances entirely, 
on the grounds that brothers and sisters have no real claim 



on one another's support But it seems more consistent, on 
the whole, not to consider the knotty problem of claims, but 
to include as eligible for intestate succession only those near 
relatives within the family circle, who would probably, in case 
of need, support one another voluntarily during life. 1 

But the extent of the benefit awarded to them might well 
be limited, as Mill suggested, to the minimum provision which 
the deceased relative "ought to have made, their circum- 
stances, capacities, and mode of upbringing being considered." 
Of course, if inheritances and bequests come to be fixed at a 
lower limit than this, this limit must apply equally in cases of 
will or of intestacy. 

7. Our main conclusion so far is that the ethical argu- 
ments in favour of claims to inherit, whether under will or 
the laws of succession, are extraordinarily weak in the case 
of near relatives, and non-existent in the case of distant rela- 
tives and strangers. They amount merely to illogical infer- 
ences from two propositions that are in themselves reasonable, 
namely, that parents ought to support their children till they 
can support themselves, and that reasonable expectations 
should not, if possible, be disappointed. The ethical argu- 
ment in favour of the right of bequest remains the discredited 
one of "natural rights/' 

When we leave ethical questions on one side and turn to 
questions of economic expediency, the tests are perhaps surer 
and more definite. We have here to distinguish between the 
effects of the right of bequest on those who have property to 
bequeath, and the effect of bequests and inheritances on those 
who receive them. The latter will be considered first. 

8. The economic defects of permitting large inheritances 
are obvious. Apart from their bad effects on distribution, 
they act as a direct deterrent to work and personal economy, 
both before and after they are received. The man who expects 
to inherit, say, 100,000, generally does not start life with 
the idea that he has got to earn his keep, and the idea is still 

1 On the same grounds, a good case might be made out for in- 
cluding in the circle employees of old standing. 



further from his mind when he does inherit. Thus large in- 
heritances, by taking away the economic incentive to work, do 
breed a class of " idle rich." The fortunate circumstance that 
this class is relatively small is due partly to the fact tha{ large 
inheritances are relatively few, but partly also to the natural 
human instinct to lead a useful life, and partly to the traditions 
of those old-established families which, up till comparatively 
recent times, were entrusted with the task of central and local 

9. Large inheritances have, however, been sometimes de- 
fended on the ground that a leisured class performs consciously 
or unconsciously a useful function. There is first the curious 
idea that it serves to stimulate industry on the part of those 
who are not in it an idea which seems to be based on the 
theory that work, not satisfaction, is the true aim of economic 
activity that the donkey, for its own good, should be induced 
to desire an ever greater quantity of carrots. 1 In attacking 
Primogeniture, Mill found it necessary to ridicule the idea that 
it was "indispensable to the activity and energy of the hive 
that there should be a huge drone here and there, to impress 
the working bees with a due sense of the advantages of honey," 
and pointed out that, if you want to stimulate industry by 
examples of riches, the stimulus is more likely to be effective 
if you choose for your examples riches gained by industry 
rather than by inheritance. 3 Nevertheless, the idea seems to 
have impressed Taussig as well as McCulloch. 3 

1 For a theory in direct opposition to this, see Chap. I, p. 39. 

a Mill, op. cit., Chap. IX. 

8 Taussig, Principles, Vol. II, p. 253. " The immediate effect of 
idleness on the part of a fraction of the community is obviously to 
lessen the total available labour force; the great mass must work 
not only for their own maintenance, but for that of this privileged 
fraction. But the prospect of being a member of the leisure class 
has proved a wonderfully powerful bait to effective exertion and 
permanent investment. False as the ideal of exemption from labour 
seems to the thinking few, and doubtful as may be the happiness of 
those born to a life of leisure, the hope of privileged position for 
one's self or one's kin has been the main motive force, for the 
material progress of society.*' 



10. More important, however, is the theory that the 
existence of a leisured class of inheritors is necessary for the 
development of science and the arts, and for the progress of 
civilisation. The theory is supported by two arguments. The 
first is that the surplus income of society has never been suf- 
ficient to secure the refinements and culture of civilisation for 
all, that these would vanish if everybody had to earn their 
daily bread, and that it is better that a few should achieve 
a high level of civilisation than that all should remain in 
barbarism. "Feudal society," writes G. M. Trevelyan, 
" divided up the surplus product of the labour of the rural serf 
among barons and knights, bishops and abbots. By stereo- 
typing and regularising the inequality of incomes derived from 
the land, it enabled wealth to accumulate in the hands of 
Lords and Prelates, and so stimulated the rich man's demand 
for luxuries, whence grew the trade and the higher arts and 
crafts of the merchant cities. In this way, the Dark Ages 
progressed into the Middle Ages, and barbarism grew into 
civilisation but decidedly not along the path of liberty and 
equality. . . . The arts of civilised life were forced into being 
in mediaeval England by the unequal distribution of wealth 
under the feudal and manorial system. . . .-' l In the same 
way, it may be shown that the civilisations of Greece and Rome 
rested upon slavery, or that, in our own day, the more demo- 
cratic and equalitarian conditions in some of the younger 
colonies are unfavourable to culture. 

The second argument is closely connected with the first 
It is that the greatest developments in science and art have 
often been the fruits of labour which was unremunerative to 
those who performed it, and which could not have been under- 
taken without the support of unearned income over the long 
period during which the ultimate value of the work to society 
was unrecognised. Again it is suggested that descendants, 
established in the leisured class by a progenitor who acquired 
riches by superior ability in the economic sphere, are likely 

1 G. M. Trevelyan, Short History of England, p. 133. The author 
writes neither to praise nor blame. 



themselves to possess more ability than the average. If the 
ability were inherited without the fortune, it is argued, it would 
probably be absorbed in the acquisition of material wealth, or 
crushed by adverse circumstances. In the former case, there 
may be a definite economic gain to society as well as to the 
individual, but not perhaps the greatest gain to the former, 
when economic considerations are viewed in proper per- 
spective. For if a fortune is inherited along with great ability, 
the inheritor is more likely to scorn material rewards and to 
devote himself to those higher intellectual activities, which 
have no immediate and obvious economic value, but which 
lead to the greatest human achievements, and may prove ulti- 
mately of incalculable benefit to mankind. In short, genius 
must be protected from economic necessity, and, directly or in- 
directly, inherited wealth enables inherited ability to do its best 

11. The first argument may be based on historical facts, 
but these may be examples of what to avoid. The ideal of 
civilisation which the argument supports is frankly in opposi- 
tion both to utilitarian philosophy and to Christian ideals, and 
is hardly likely to appeal to democratic communities, which do 
not attach a mystical value to the achievement of knowledge or 
art for its own sake, when their own happiness is at stake. 
Were the choice inevitable between the pursuit of economic 
liberty and equality, on the one hand, and the highest develop- 
ment of art and science on the other, I should be disposed to 
reply in the manner of the French Revolutionaries to La 
Voisier, " La Rtpublique n'a pas besom de savants" l 

But, in fact, there is no such inevitable choice in modern 
Britain. As a means of fostering the growth of science and the 
arts, the "leisured class" must be judged to-day as an in- 
efficient and unnecessary institution. For, in the first place, it 
is plain that the great bulk of its surplus income is not spent 
with that object or with that effect *; and, in the second place, 

1 The reply said to have been made by the President of the 
Tribunal which condemned La Voisier to the guillotine. 
* See Chap. I, p. 55. 



theory and experience suggest that the Universities, and other 
corporate and public bodies can perform that function no less 
efficiently from the point of view of the scientists and artists, 
with less waste of society's income, and with cultural benefit to 
a larger section of mankind. If we look at modern tendencies 
in Britain, we can see that, just as the provision of material 
capital is devolving more and more on corporations and the 
State, 1 so is the responsibility for promoting knowledge and 
beauty. Hitherto, indeed, from Galileo to Einstein, the Uni- 
versities have nearly always recognised scientific merit and have 
been chiefly responsible for facilitating its achievements. If, in 
the past, they were largely dependent for funds on the bene- 
volence of the rich, that is not so to-day. Artists are perhaps 
in a less fortunate position than men of science, being more 
dependent on uninstructed patronage. But there is no neces- 
sary reasoif why professional and official bodies, or even the 
directors of business corporations, should make more errors 
of judgment and taste than rich private patrons; and 
a much wider public is able to appreciate or criticise their 

12. The second argument outlined above that many of 
the greatest thinkers were dependent for their livelihood on in- 
herited fortunes finds little support in the history of modern 
times. Of the great scientists of the nineteenth century, Darwin 
and Clerk Maxwell had sufficient inherited means for a com- 
fortable life, though their fortunes were not very large. But 
Huxley, Mendel, Helmholtz, Faraday, Ampere, and Lobachev- 
sky not to mention the inventors Watt and Stevenson whose 
work brought a fortune inherited little or nothing in the way 
of material wealth; and Kelvin, Wallace, and Priestley seem to 
have been largely dependent on what they could earn and save. 
Even in earlier times, when scientific training was more difficult 
to acquire without leisure and means, we find Galileo, Newton, 
and Leibniz supported by University appointments and official 
favour, rather than by inheritance. Equally among those 
famous in art, music, and literature, the rich inheritor is a rara 
1 See Chap. I, pp. 43-5. 


tws, and the large majority have known the pressure of 
economic necessity. 

But even if it were true in every case that genius in certain 
fields is unable to develop fully without inherited property to 
support it, that would still be no reason for permitting inherit- 
ances in excess of the minimum required to secure the neces- 
saries and conveniences of life. It is unnecessary to dogmatise, 
but I should judge that a large inheritance has more often been 
an encumbrance than a support to potential genius. 

13. There is one other non-economic argument in favour 
of inheritances large enough to secure freedom from the curse 
of Adam, and one which appeals in practice to many who 
would forswear it in theory. It is that which Plato gives in the 
Republic. " I see that you are indifferent about money," says 
Socrates to Cephalus, " which is a characteristic rather of those 
who have inherited fortunes than of those who have acquired 
them; the makers of fortunes have a second love of money as a 
creation of their own, resembling the affections of authors for 
their own poems, or of parents for their children, besides that 
natural love of it for the sake of use and profit which is 
common to them and all men. And hence they are very bad 
company, for they can talk about nothing but the praises of 
wealth." And Cephalus remarks in reply that " the great bless- 
ing of riches, I do not say to every man but to a good man, is 
that he has no occasion to deceive or to defraud others, either 
intentionally or unintentionally." l 

Yet we may question the social value and the permanence 
and dependability of a generosity and honesty of character that 
can flourish only when the fear of poverty is artificially, re- 
moved; and it is not impossible to picture Cephalus in another 
setting repressing a revolt of slaves with a feeling of justifiable 
ferocity. When the basis on which it is founded is seriously 
questioned and shows signs of instability, the character of the 
leisured class is often seen in a very different light. " Their 
whole habit of thought becomes timid," says Bertrand Russell, 
" since they dread being forced to acknowledge that their posi- 
1 Republic, Jo^ctt trans. 


lion is indefensible; yet snobbery and the wish to secure their 
favour leads almost the whole middle class to ape their manners 
and adopt their opinions. In this way they become a poison 
infecting the outlook of almost all educated people." l 

14. The usual economic defence of Inheritance rests on 
the advantages of the right of bequest rather than on the right 
of inheritance. It is that, unless men have the right to dispose 
of their property after their death as they please, they will not 
take the trouble either to preserve or to increase their capital, 
and to provide in this way for the needs of the coming genera- 
tion. It is said that, without the secure ability of private 
persons to provide after death for those whom they love, the 
material equipment of society will diminish, and, however 
much the gain in greater equality of distribution, it will not 
compensate for the loss in productivity. " In a society organ- 
ised on the basis of private property," says Taussig, 3 " inherit- 
ance is essential to the maintenance of capital. . . . For sus- 
tained accumulation and permanent investment, the main 
motives are domestic affection and family ambition. ... If we 
were to put an end to inheritance, decreeing that all estates 
should escheat to the public at death, the owner would com- 
monly dissipate his property. One of the motives for its first 
acquisition would be gone, and certainly the chief motive for 
its maintenance. Why accumulate and invest for the benefit of 
the community at large? " 

It is clear that the argument applies with more force to the 
English system of freedom of bequest than to the Continental 
laws of inheritance. It only applies to the latter in so far as the 
legal restrictions of the legitim accord with the wishes of the 
property owner and are therefore unnecessary. The practical 
effect of the two systems on the desire to save is probably, how- 
ever, much the same. For, since most parents desire chiefly to 
benefit their offspring, the knowledge that the latter will inherit 
the bulk of their property by force of law is, in the large 
majority of cases, no less strong an incentive to accumulation 

1 Principles of Social Reconstruction (1916), p. 128. 
9 Principles, Vol. II, p. 249. 


than the right of free bequest. And, in the case of those who 
are not parents, Continental law permits in most cases the same 
freedom of bequest as in Britain. 1 

15. The argument is frequently accepted as based on self- 
evident propositions and beyond the reach of critical analysis. 
1 In fact, it is no more water-tight than most hasty generalisa- 
tions. Let us agree that the desire to provide for children is a 
most important incentive to industry and saving among parents, 
and that the fact that property can be disposed of after the 
death of its owner in accordance with his wishes makes pro- 
perty more desirable, and therefore acts as an additional stimu- 
lus to its acquisition and preservation. But it does not follow 
that inheritance is therefore essential to the maintenance and 
increase of capital; still less may one infer that unlimited in- 
heritances are necessary for that purpose. 

In Chapter I we considered the question of what constituted 
an adequate supply of fresh capital. We saw that, apart from 
the addition or subtraction of incentives, anything which brings 
about a much more equal distribution of income must unless 
the total income is greatly increased reduce the total ability 
of private persons to save; but that a decline in private savings 
does not necessarily render inadequate or even reduce at all 
the total supply of fresh capital, because there are alternative 
means of supply. It was pointed out that Companies' undis- 
tributed profits already supply 40 per cent, of the total of 
British savings, and a still higher proportion of the total in- 
vested in British industry; and that the provision of capital by 
the State out of the proceeds of taxation was not only theoret- 
ically conceivable, but was actually being effected within a 
limited sphere. Neither of these alternative sources of supply 
need be adversely affected by the abolition of inheritance. On 
the contrary, business reserve funds can, if the community de- 
sires, be increased by fiscal inducements or legal compulsion; 
and the extent of State saving is limited only by considerations 
of public policy, and ultimately, of course, by the total income 

1 Since comparatively few property owners die before their 



of its citizens. For a more detailed consideration of the poten- 
tialities of these alternative methods of obtaining capital, I 
must again refer the reader to Chapter I. Here it is only neces- 
sary to show that, however the existence of inheritance may 
affect the psychology and means of the individual saver, it is 
not an indispensable factor in the maintenance of capital. 

16. In the second place, the desire of parents to provide 
for their children may be, among parents, the strongest motive 
for the accumulation and maintenance of capital. But it is a 
motive which cannot operate among those who are not parents, 
and to these the right of bequest and the laws of inheritance 
can hardly have the same importance. Yet it is a significant 
fact that a considerable proportion of rich persons leave no 
descendants to enjoy their property. For example, during the 
three years 1923-5, of those in Britain leaving estates in excess 
of 100,000, 33 per cent, had no surviving children, and 23 per 
cent, left neither spouse nor child. 1 It is difficult to see what 
influence " domestic affection and family ambition " can have 
had, in such cases, on the preservation of capital. 

17. In the third place, if, in the case of parents, the desire 
to provide for their children is the all-important motive for in- 
dustry and saving, the right of bequest by will is in reality of 
little importance, provided the right of gift during life remains. 
Why should a father wait till death to provide for his children, 
who will then normally be middle-aged persons at the height of 
their earning and saving capacity and with economic futures 
that are probably already made or marred? Gifts of property 
at an earlier age are much more likely to be of real utility to 
the children. The fact is that parents of means can, as a rule, 
make better provision for their children by gift than by in- 
heritance. But when a fortune has passed a certain limit, 
further accumulation is no longer inspired by family affection, 
nor even, in many cases, by the desire to leave the accumula- 
tion to anyone in particular. Why else should we find .that, 
even with a 30 per cent, or 40 per cent, death duty waiting for 

1 See Reports of Commissioners of Inland Revenue for those 
years (Estate Duty figures). 



them, millionaires will still retain a large portion of their pro- 
perty till the last moment of life? 

We may conclude, then, for the present, that the right of be- 
quest and inheritance is not essential as a stimulus to private 
saving. For, as regards those saving from other motives than 
the provision for dependants, there seems no reason why the 
abolition of the right of bequest should greatly affect their 
actions. And, in the case of those who save with the object of 
handing on property to their family, they can achieve their ob- 
ject as well by gift during life as by bequest at death. If in- 
heritance were abolished, they would choose the former alterna- 
tive; and, since it is always possible to make formal or informal 
arrangements whereby the donor receives an allowance for life 
in return for his gift, 1 practically the whole of their property 
would, hi many cases, be given away well in advance of death. 
Of course, some would die much sooner than they expected, 
and thus part of their savings would not in fact be handed on 
as they intended, but would escheat to the State. The fact that 
the time of death cannot be confidently predicted in individual 
cases, and the feeling of insecurity caused on this account, 
might deter some from saving as much as they otherwise 
would; but, in other cases, the effect would be to induce them 
to make their gifts larger and earlier. Of course, both the 
ability and the incentive to save of those in old age would be 
reduced, but, on the other hand, that of the young would be 

Thus, in general, the chief effect of the abolition of inherit- 
ance by itself would be not to diminish the incentive to save 
an4 to encourage the dissipation of capital, as Taussig suggests 
but to stimulate gifts between the living, as the obvious 
alternative to bequests at death. The effect of a heavy pro- 
gressive tax, falling both on inheritances and on gifts made 
within a certain period of death, is a different matter, and will 
be considered in the next chapter. 

1 E.g., by the mechanism of the private company; see remarks in 
Chap. X. 




1. SOME form of tax on property passing at death operates 
in most modern States, and modifies in a greater or less degree 
the inequality of inheritances. 1 In Britain, with the scale of 
rates of the Death Duties at their present level, the modification 
is considerable, though its full effects will not be apparent for 
another ten or fifteen years. 

The British Death Duties consist of two main sets of taxes. 
The first, the Estate Duty, falls on all estates passing at death in 
excess of 100 net, with a moderately progressive scale accord- 
ing to the value of the whole estate. The second, the Legacy 
and Succession Duties, which are in effect one tax, 2 is levied on 
bequests and inheritances, and is progressive, not according to 
amount received, but according to the distance of relationship 
of the legatee or successor. The Estate Duty is now much the 
more important and raises more than six-sevenths of the 60 
millions* or so derived from 'the Duties. The effects of the 
Legacy and Succession Duties on the distribution of property 
may be treated in practice as negligible. The rates of Estate 
Duty (as determined by the Finance Act of 1925) rise from 

1 For Inheritance taxes in countries other than Britain, see Max 
West, Inheritance Tax (1908), Besson, TraM pratique de I'impdt 
progressif des successions (1920). 

2 All personalty devolving under will or intestacy is liable to 
Legacy Duty. Settled personalty and all realty in Great Britain is 
liable to Succession Duty. The rates of Tax in each case are 1% 
on inheritances in the direct line or between spouses; 5% on in- 
heritances by brothers, sisters, nephews, nieces; on other collateral 
inheritances and bequests to strangers, 10%. For a clear account 
of property liable to Death Duties, exemptions, etc., see 65th 
Report of Inland Revenue. 

8 70 millions in 1928. 



1 per cent, on estates of 500 to 15 per cent, on estates of 
50,000, 20 per cent, on estates of 100,000, and 30 per cent, on 
estates of 1 million, the highest rate being 40 per cent on 
estates of over 2 million. 1 The effect of the Duties in modi- 
fying the distribution of property passing at death is illustrated 
by the following table : 


Range of 







500,000-1 million 

1 million and over 



































2. From the point of view of their effects on distribution, 
the Death Duties in their present form have certain obvious 
defects quite apart from the question of steepness of grada- 
tion. In the first place, the chief tax, the Estate Duty, is not 

1 The rate of progression is not yet so steep as that of Income 
Tax and Super-tax together on Investment Incomes, see Appendix 
XVI, Colwyn Committee Report. 

2 The rates of Estate Duty in the middle grades (e.g. from 25,000 
to 800,000) were increased by the Finance Act, 1925, and took 
effect for deaths after June 29th, 1925. Much of the property in this 
financial year would be taxed at the previous rates. For minor dis- 
crepancies in the figures, as between the different columns, due to 
payment of duty in certain cases by instalments, delay in ascertain- 
ing exact value of estates, etc., see the official remarks in the Inland 
Revenue Reports. These discrepancies, on balance, do not have 
much effect. 



graded according to the amount of the individual inheritance, 
but according to the total estate left at death. It therefore 
takes no account of differences in the number and amounts of 
legacies coming out of an estate. The deduction is the same 
whether the whole estate passes to one single heir, or is dis- 
tributed among one hundred persons. I do not say this is in- 
equitable, but obviously it is less favourable to equality of 
distribution than an inheritance tax with the same rate of pro- 
gression would be. 

The Estate Duty is, indeed, supplemented by a comparatively 
light tax levied directly on bequests and inheritances. But these 
Legacy and Succession Duties make no attempt at progression 
according to amount, except in so far as small bequests and 
successions are altogether exempted. Hie method of progres- 
sion according to distance of relationship is, if anything, un- 
favourable to the equalisation of inheritances, since it differen- 
tiates in favour of keeping property within the family and 
presses more heavily in proportion on bequests to strangers.and 
to charities. The only economic justification of that method of 
progression is that people are usually more intent on accumu- 
lating for the benefit of direct descendants than for collaterals 
and strangers, and that consequently a higher duty can be im- 
posed on bequests to the latter without discouragement to 
saving. 1 Certainly there is some truth in this theory, which 
would be more evident if the rate of tax were very much 
higher; but there is nothing here to justify the absence of pro- 
gression according to amount. 

The fact is that the Legacy and Succession Duties are sur- 
vivals from a period when progression according to amount 
was considered immoral. And since then, nobody has bothered 
much to reform the anachronism and to bring these duties up 
to date, because their younger sister, the Estate Duty, has over- 
shadowed them. 

1 Cp. Sidgwick, Principles (3rd Edn.), p. 580, Bk. Ill, Chap. VIII. 
"It seems expedient in the case of these taxes to give up the 
ordinary aim at equality of incidence so far as to place a much 
heavier tax on wealth inherited by persons not in the direct line." 



3. It is clear that the chief reason why the Estate Duty 
was not introduced in the form of an Inheritance Tax was an 
administrative one. 1 An Inheritance Tax would, in the opinion 
of the experts, be more costly and more difficult to collect. The 
chief difficulty appears to be that, while the State gets at 
present " full particulars of the manner in which an estate is 
intended to be distributed,' 9 " it has little or no knowledge of 
the actual final distribution," * which may depend, in the case 
of settlements, on a number of contingencies. It is by no means 
always clear from the terms of a will, either what persons 
benefit, or the actual extent of their benefit; and " dummy " 
legatees might be inserted in a will with the object of cheating 
the revenue.' The authorities would have to rely partly, at 
least, on the statements of executors as to the actual distribu- 
tion of benefits, and executors' statements would have to be 
checked. Collection of the present Estate Duty is clearly 
simpler, since it is assessed by reference to the whole estate and 
paid at the source before distribution. Deduction at the source 
would not always be possible in the case of an Inheritance Tax. 

Nevertheless the Board of Inland Revenue reported to the 
Colwyn Committee that a tax graduated by reference to the 
amount of benefit received could be effectively administered, 
provided certain necessary powers were obtained by legislation. 4 

4. It has been suggested that a second defect of our system 
of Death Duties, from the point of view of their effects on dis- 
tribution, is that no account is taken directly or indirectly of 
the previous wealth of inheritors. " It seems unreasonable," 
says the Minority Report of the Colwyn Committee, " that a 
millionaire receiving a bequest of 1,000, should pay no higher 
rate of duty on this than does a person whose property prior 
to the bequest amounts to no more than a few hundreds." But 

1 See Dalton, Inequalities of Income, p. 313. In 1886 Lord Ran- 
dolph Churchill had in mind a direct Inheritance Tax, but was dis- 
suaded by Treasury officials. 

3 See Appendix XXVI to Colwyn Committee Report. 

1 I.e. the " dummy " would undertake to pass on the legacy or to 
hold it for the benefit of the real heir. 

4 See Appendix XXVII to Colwyn Committee Report 



in practice people do not leave 1,000 bequests to millionaires, 
they either bequeath a great deal more or nothing. In general, 
the larger bequests and inheritances go to those who are 
already fairly well off, and the smaller bequests to those who 
are less well off. Again, the Majority Report of the same Com- 
mittee points out with jsome truth that any test of the inheritor's 
" other wealth " is likely to be arbitrary. 1 

Nevertheless, the absence of graduation according to the 
previous or total wealth of inheritors is a theoretical defect of 
our Death Duties, which might have practical significance, if 
the Legacy and Succession Duties were transformed into a 
highly progressive inheritance tax. In such a case, I do not see 
any insuperable difficulty in graduating the tax, not merely ac- 
cording to the amount of benefit received by a given inherit- 
ance, but according to the inheritor's total property. If gifts 
inter vivos are dealt with in the same way, as I suggest in the 
next chapter (where I deal more fully with administrative diffi- 
culties), we should then have a more ideal progression, accord- 
ing to the total amount of a man's gratuitous property. 2 

5. If our present Death Duties take no account of the in- 
heritor's previous property or income, they do take some ac- 
count of his or her needs. Thus widows, and children under 
the age of twenty-one years, are exempted from Legacy and 
Succession Duty when the benefits derived from the dead hus- 
band or father do not exceed 2,000; and the property of com- 
mon seamen and soldiers who die on service, and who are 
perhaps more likely than other classes to leave widows with 
young children unable to provide for themselves, is totally 
exempted from Estate Duty. There is, indeed, a good case for 
extending abatements to all cases of inheritors who are unable 
to support themselves, on account of extreme youth or age, 
sickness or infirmity. 

A third possible objection to our Death Duties, from the dis- 
tributive point of view, is that on balance they differentiate 
against rather than in favour of charitable bequests. Charit- 

1 See Maj. Kept., Colwyn Committee, par. 1026. 

2 See Chap. X, pages 250-3 below. 



able gifts during life are indeed favoured to the extent that they 
are exempted from Estate Duty, if made more than one year 
before death. But bequests over 100 to servants, employees, 
and philanthropic institutions are all taxed at the highest rate 
for Legacy and Succession Duty. 1 I do not suppose, however, 
that this in itself would discourage such bequests. More im- 
portant, perhaps, is the fact that the Estate Duty falls with 
equal weight on estates" of the same value, whatever the portion 
destined for charitable purposes. 

One must remember, however, that all taxation necessarily 
tends to reduce the taxpayer's capacity to be philanthropic 
from his private funds, at the same time that it increases the 
capacity of Government to serve society at large. But this con- 
sideration need not deter us from giving such mild encourage- 
ment as is feasible to gifts and bequests to poor people, to 
philanthropic bodies and research institutes, and to the State, 
so long as these are not accompanied by obnoxious conditions 
such as those to which Mill objected. 3 Actually, no legislator 
who supplants our Legacy and Succession Duties by a progres- 
sive Inheritance Tax at all drastic in character, is likely to omit 
to make certain exemptions and abatements in the case of such 
bequests. There is rather perhaps a danger that the exemp- 
tions and abatements may be too indiscriminate; for although 
nearly everybody may agree that certain philanthropic bequests 
are deserving of favour, everybody may not agree where to 
draw the line. 

6. The chief defect of our Death Duties, as an instrument 
for reducing inequalities of gratuitous property, lies not in the 
method of progression, but in the fact that they do not apply to 
the large majority of gifts between the living. I deal with this 
question in more detail in the next chapter. It is sufficient to 
repeat here what has already been made plain, that hereditary 
inequalities of property can take place by the medium of gifts 

1 Bequests of articles of national, scientific, etc., interest are 

a E.g. bequests to educational institutions conditional on certain 
doctrines being taught. 



during life just as well as by inheritance at death. It is true 
that when a large part of property is distributed to heirs by gift 
during the parent's life, there is likely to be somewhat less ac- 
cumulation, and fortunes are not likely to grow so large, as 
when they are retained till death, so that on this account there 
might be some diminution of inequality. On the other hand, 
when taxation is imposed at a progressive rate on property 
passing at death only, the larger property owners are likely to 
give during life a larger proportion of their estates than smaller 
property owners. Consequently, while the inequality of taxed 
inheritances is reduced, that of untaxed gifts is increased. This 
is what takes place in some degree under our present Death 
Duties. 1 The present limitation of exempt gifts to those made 
more than three years before death is not an effective method 
of dealing with the problem, and is not particularly equitable.* 
We do not want to discourage gifts and to encourage people 
ungenerously to retain their property till death, since a gift 
made at an earlier age is likely to be of more benefit to heirs 
than the same sum received by inheritance when the latter are 
middle-aged. For this reason alone, we should oppose pro- 
posals to " tie up " property in such a way as to make gifts 
more difficult. The object of the legislator should be not to 
check gifts, but to reduce their inequality. Hence waiving 
for the moment administrative difficulties the best plan, from 
the distributive point of view, would be a progressive tax falling 
equally on gifts and inheritances, accompanied perhaps by a 
rather milder * Estate Duty on property passing at death. The 
latter tax would encourage earlier distribution among the 
living, while the former would reduce the inequality of that 

7. It has sometimes been suggested that the Death Duties 
are inequitable because they do not fall on all estates at the 
same interval of time. For example, within the space of a cen- 

1 See Chap. X, p. 244 and note. 
9 See Chap. X, p. 248. 

' Le. rather milder than the Inheritance and Gifts Tax not 
necessarily than the present E.D. 



tury, some estates may change hands^at death three times, 
some four times, some five times, and so on. Thus, there is an 
element of uncertainty as to the effect of the DeathDuties on the 
estate of any particular family. With a series of succession in- 
tervals shorter than the average, a family estate will diminish 
more rapidly or will increase less rapidly within a given space 
of time, both because there is less time for each generation to 
add to it by saving, and because the Death Duties fall with 
greater frequency. It is suggested that this is inequitable, but it 
is hard to see in what respect. Is the unfairness on the man 
who founds a family or on his successors? In the former case, 
he cannot foretell the succession intervals of his descendants 
and cannot, therefore, resent the effects of any undue rapidity 
of succession. And, in the case of the successor, he surely can 
scarcely claim a legitimate expectation to receive any larger 
proportion of a given bequest or inheritance than other in- 
heritors. He cannot reasonably expect the community to re- 
compense him for the misfortune of having a short-lived pre- 
decessor, beyond adjusting the rate of tax to the size of his 
inheritance. The disappointment of irrational expectations is 
not an injustice. 

The Death Duties are also said to be inequitable, because 
they do not take into account either the capacity of the in- 
dividual to make provision for them during life, or the effect 
of fluctuations in property values. This argument is evidently 
based on the theory that the Death Duties are in the nature of 
a "deferred income tax," and should, therefore, be graded 
according to the previous owner's ability to pay. But, since 
one does not have to pay during life the Death Duties on one's 
own estate, and their conversion to an income tax by means of 
insurance or a private sinking fund is not compulsory, the argu- 
ment is clearly invalid. An income tax is not necessarily the 
only equitable tax, and the fact that the Death Duties are not 
equivalent to an income tax does not render them inequitable. 1 

1 Both the preceding arguments are mentioned in the Colwyn 
Committee Report, pars. 480-9, and are not examined with the 
Committee's customary clarity. 



8. The chief opposition to the Death Duties is based, not 
on considerations of equity, but on the view that they reduce 
the supply of capital. It is indeed often asserted though not 
usually by economists that the Death Duties are the most 
damaging of all our taxes in their effects on productivity, be- 
cause they are levied not on income but on accumulated sav- 
ings. In that form the argument is certainly fallacious. 1 Be- 
cause Income Tax is usually paid out of current income, and the 
Death Duties are sometimes paid by selling part of the de- 
ceased's property, that is no proof that the Death Duties trench 
upon savings more than an income tax. In neither case, of 
course, is there actual annihilation of existing capital. 2 The 
difference between the two transactions is that, in the first case, 
the tax is paid out of income which might have been " saved " 
by the taxpayer, and, in the second case, out of the proceeds of 
actual savings by others than the taxpayer, which might other- 
wise have been invested in industry. The difference is apparent 
rather than real. For a man may save more than he would 
otherwise do in order to provide for the Death Duties; while, 
on the other hand, it is conceivable that he might meet Income 
Tax simply by reducing his customary saving. To say that the 
first tax is paid " out of capital " and the second out of income 
is, therefore, either meaningless or definitely fallacious. 

A second and equally obvious consideration is that taxes paid 
out of the taxpayer's actual or potential capital do not cease to 
be actual or potential capital in the hands of Government. 
This is particularly obvious where Death Duties are paid in 
War Bonds, in which case Government merely cancels its debt 
to the taxpayer. But it is equally true of all other means of 
payment, that Government can always use the revenue either 
to reduce its liabilities or to increase its assets. Whether it does 

1 See Stamp, Fundamental Principles of Taxation, pp. 145-8. 

* Except in the sense that a man can, if he wishes, pay either tax 
by spending less on the maintenance of his private possessions (not 
controlled by companies), thus shortening the life of the capital 
goods within his control. In the case of capital controlled by com- 
panies this policy cannot be pursued. 

H 225 


so or not depends not upon the nature of the tax, but upon the 
nature of the Government. 

9. Most fallacies regarding the Death Duties, and " pro- 
gressive " taxation generally, can be traced to the inability to 
realise three self-evident theorems first, that the immediate 
effect of all taxes is to reduce the amount which private in- 
dividuals can at will either consume or save; second, that pri- 
vate saving is not the only way by which capital is maintained 
and increased; and third, that a reduction in the supply of 
capital does not necessarily involve a reduction in productivity. 
I have previously enlarged on the last two theorems (see 
Chapter I) in connection with the general problem of distribu- 
tion. It is only necessary here to point out the corollaries 
applicable to the present discussion. 

As regards the second theorem, it is clear, for example, that 
the supply of capital to British industry would be greatly in- 
creased if the Government were to raise 1,000 millions a year 
by the Income Tax and Death Duties, and to invest the whole 
of the proceeds in British industry; for, though the effect of 
such a course would probably be to stop nearly all private 
saving, the latter does not amount to anywhere near 1,000 
millions a year. The force of the example is not reduced by 
the practical consideration that no government would be mad 
enough to try it, and no electors foolish enough to permit such 
a course. The argument, that progressive taxes, whetherlevied 
on income or capital, reduce saving rather than extravagance, 
can always be met by the answer that, if the tax is high enough, 
it must reduce extravagance, and that the effect on the supply 
of capital depends largely on what the Government does with 
the money raised. 

As regards the third theorem, it is also evident that taxation 
is not necessarily injurious to productivity, even if it reduces 
the total saving from all sources, and not only private saving. 
More capital at any price is obviously a futile motto for 
governments as well as individuals. Saving is neither a private 
nor a public virtue when it is done at the expense of health and 
happiness. No sane person would advise a family man with 3 



a week to put by half of his income. And no government in 
its senses would stop all public expenditure on health and edu- 
cation in order to use the revenue for the cancellation of the 
National Debt. 

It is, then, no valid argument against " progressive " taxes 
in general or against the Death Duties in particular that, by 
pressing chiefly on the richer classes, they reduce the surplus 
out of which the bulk of private saving comes, unless it be 
coupled with a demonstration that Government inevitably puts 
the proceeds to less beneficial uses than the private taxpayers 
would. 1 And in that case, it is rather an argument against 
governments and taxation in general. For clearly no taxation 
is justified if it does not deflect labour and capital from less 
useful to more useful purposes utility in this case being judged 
from a wider angle than the purely economic. 

The comparative merits of a tax may rightly, however, be 
judged by its psychological effects on the individuals concerned. 
It is plainly undesirable, for example, that a tax should dis- 
courage a man from being a useful member of society and 
behaving in a manner beneficial to his fellows. It ought, on 
economic grounds, to be met so far as possible by a reduction 
of the least necessary or least useful elements of private ex- 
penditure. It ought not to discourage anyone from contribut- 
ing his best service to the community, or, in narrower economic 
terms, from industry, enterprise, and personal economy. Those 
who can work and save with benefit to themselves and others 
ought not to be discouraged from doing so. 

10. Do the Death Duties discourage work and saving? 
The opponents of Death Duties appear to be of two schools of 
thought on this matter. There is first the school, represented 
by Sir Felix Schuster, which considers that Death Duties are 

1 Cp. Dalton, Public Finance, p. 33. " Ability to save is reduced 
by all taxes on those who have any margin out of which saving is 
possible. The only taxes, therefore, which do not to some extent 
reduce ability to save are those which fall exclusively on people 
who are so poor that they have no such margin. 9 ' It follows that 
taxes which do not reduce the ability to save must reduce the 
ability to work. 



bad because they are forgotten by the living, who therefore 
make no effort to make provision for them by extra saving. 1 
But, clearly, you cannot say that a tax discourages saving, be- 
cause it does not encourage people to save more than they 
would otherwise do. In fact, however, a certain number of 
people, though probably only a minority of the well-to-do 
classes, do make special provision for death duties by insurance. 

There is, secondly, the larger school of thought which takes 
the opposite view and considers that the Death Duties appear 
as an ever-present menace to those who wish to "found a 
family," and thereby cause them to make actually less effort to 
provide for their heirs. 

The first opinion is turned in the opposite direction by some 
advocates of the Death Duties, who consider that, in so far as 
they are forgotten by the living or discounted more than 
actuarially they should be, there is a positive advantage, be- 
cause other taxes on property and income, recurring during life- 
time, are more obvious and keenly felt and thereby do more to 
discourage work and saving. 3 Other thinkers on the subject 
directly negative the second opinion and consider that the 
effect of the Duties is to make fathers of families save more, in 
order to provide for their children a sufficient property to with- 
stand the inroads of taxation. 

Actually, as applied to the present system of Death Duties, 
such arguments are not of great importance, so long as there is 
the gaping loop-hole of gifts inter vivos. I have previously 
argued that the chief effect of the complete confiscation by the 
State of property left at death would be not so much to dis- 
courage saving, as to replace inheritance by gifts during life. 
And the same reasoning obviously applies, though in a less 
degree, to a heavy inheritance tax or Estate Duty. 

11. But, since, if the Death Duties were to be employed 
to raise a much larger sum than at present, their scope would 
have to be widened in some way so as to fall on large gifts as 

1 Colwyn Committee Report, par. 526. 

2 E.g. Pigou, in evidence to Colwyn Committee and in Economics 
of Welfare, p. 673. 



well as on inheritances, it is a useful theoretical problem to 
consider what would be the psychological effects on savers and 
inheritors of a tax on property acquired both by gift and in- 
heritance, graduated directly according to the amount received. 
The practical problem of whether or not such a tax is adminis- 
tratively feasible I leave for later discussion. It is to be as- 
sumed at present that the tax cannot be evaded. 

Will such a tax strengthen or weaken the motives which 
lead people to work and save? 

" Ordinary work," says Mr. Bertrand Russell, with obvious 
truth, " is done for the sake of a living, and the best work is 
done for the interest of the work itself." 1 A large inheritance 
must be held to diminish the force of the ordinary motive, in 
the case of the recipient. Hence one effect of a tax which re- 
duces materially the size of inheritances must be, in many 
cases, to encourage inheritors to work more than they would 
otherwise do. 2 

There must also, however, be a certain number of people, 
who have already saved or inherited sufficient property to en- 
able them to be idle, and who yet continue working, either from 
interest, or from a sense of social duty, or from the urge to 
accumulate. An inheritance tax cannot affect the work of 
such persons when actuated by the first motive; nor can it 
affect the second motive, unless it is felt strongly to be unjust 
and thus causes an irrational pique with society at large. In the 
case of work done from the third motive, the effects of the tax 
will depend on whether it makes accumulation look more or 
less attractive. 

12. The motives which lead people to save cannot be re- 
duced to any simple formula, and obviously vary in strength 
and quality according to the temperament and circumstances of 

the individual. But they may be analysed roughly as follows * : 

1 Principles of Social Reconstruction, p. 128. 

2 Cp. Dalton, Public Finance, p. 93, and in evidence before 
Colwyn Committee. 

* This classification is largely influenced by that given in Sir 
Josiah Stamp's Fundamental Principles of Taxation, pp. 157-61. 



In the first place, a good deal of saving is done with the 
object of providing a store which can be drawn upon to meet 
current expenditure, when the saver's needs increase, owing to 
addition to the family or the claims of its education, or when 
the saver's income declines in unemployment, sickness, or old 
age. Such saving is what Sir Josiah Stamp calls " long-dis- 
tance spending," and a parallel might be drawn between it and 
that part of companies' reserve funds intended to cover depre- 
ciation or to equalise dividends. The great bulk of the savings 
of the working class and small-salary earners are of this 
character. But since the larger part is withdrawn later to meet 
current expenditure, it is not an important factor in the pro- 
vision of fresh capital. For the same reason, and because the 
individual savings in this class would usually in any case be too 
small to attract any considerable rate of duty, our Inheritance 
Tax would make no difference whatever to savers in this 

13. Secondly, a man may save with the object of becom- 
ing partly or wholly independent of fluctuations in what he 
earns, that is, with the object of obtaining or increasing an in- 
vestment income. Probably a good deal of the saving of the 
middle classes is done partly or largely with this motive. 

An inheritance tax cannot affect the force of this motive, 
except in so far as it cuts down incomes from inherited pro- 
perty and thus makes the getting of additional investment 
income more desirable. 

14. Thirdly, there are motives for saving not connected 
with the material comforts of the saver or his family. Thus 
persons, with no family dependants, who have acquired or in- 
herited sufficient property to provide at least enough for a com- 
fortable life, if the property is kept as a permanent investment, 
and still more than enough if the property is gradually dis- 
bursed as an annuity, may continue to preserve and increase 
their property, because they dislike extravagance. Again, a few 
very wealthy persons may save because it is more difficult to 
spend all their income. But both the last motives would equally 
lead people to give away a large part of their surplus to poor 



friends or to philanthropic bodies. Probably much the most 
important motive, which prompts men, with no family claims, 
to go on accumulating long after they have provided quite 
enough for a comfortable life, is the desire to achieve social 
distinction and power by the possession of a large fortune, or 
fame after death by leaving one. 

I cannot see how an inheritance tax could discourage saving 
on the part of people actuated by such motives. Certainly a 
heavy inheritance tax would make it much more difficult to 
achieve a large fortune if only for the reason that it would 
practically limit the time during which it could be accumulated 
to one generation. Possibly one effect might be that some of 
those in the last category would look for fame in other direc- 
tions, less profitable perhaps but not less worthy of encourage- 
ment. But the fact that the chance of a man leaving 1 million 
is reduced from 1 in 100,000 to 1 in 1,000,000, will not turn an 
ambitious man into an idler and spendthrift. 1 

15. Lastly, there is the case of the man, who saves in 
order to provide for his family dependants. This motive is no 
doubt to be found among fathers of families in all classes, but 
differing in character and urgency. There is first the case of 
the " bread-winner " who does not want his wife and children 
to be left destitute by the accident of his death. He has his 
mind fixed on a modest sum, and his most usual form of saving 
is by life or accident insurance or investment in some bene- 
volent society. A progressive Inheritance Tax, with rates on a 
similar pattern to those of the existing Death Duties, would 
hardly touch his modest provision, and its effect on his actions 
may be taken as entirely negligible. 

At the other end of the scale, however, there is the ambitious 
parent, who has made his own way in the world or is making 
it, and who wishes to " found a family," and to secure for his 
descendants as well as for himself the maximum of economic 
power and social distinction by accumulating a large fortune. 

1 Cp. Pigou, Economics of Welfare, and those quoted by him, 
p. 674. He quotes Carver, Carnegie, Rathenau, Irving Fisher in the 
same sense. 



A moderately high Death Duty or Gifts and Inheritance Tax, 
with a not very steep progression (as in our present Estate 
Duty), that does not inevitably frustrate their hopes for their 
descendants, is very unlikely, I think, to discourage this am- 
bitious type from accumulating, and may possibly stimulate 
greater economy in expenditure though not greater enter- 
prise, since this is probably already at a maximum. 

On the other hand, what will be the effect of a very steeply 
graded tax that virtually prevents any large succession passing 
to heirs? In such a case, any hopes of founding a rich family 
on the solid basis of a large inheritance is clearly doomed to 
disappointment. Here, it may be argued, there must be dis- 
couragement to enterprise and saving. But I do not believe 
that the man who is ambitious for his family will give up his 
ambition so easily,- especially as he is sure to be ambitious for 
himself also. He will, in many cases, I think, continue to ac- 
cumulate with as much energy as before in order to satisfy his 
own pleasure in the achievement of power and fame, and will 
at the same time take every opportunity open to him other 
than large gifts and bequests, which are ex hypothesi unavail- 
ing, to assure his descendants 9 position in the business world. 
In other cases, if he has not started to realise his ambitions 
when the tax is imposed, he may quite possibly divert them 
into non-economic but possibly no less useful channels. 

Actually, " self-made men " do not as a rule seem nearly so 
anxious to leave their children large inheritances, as those who 
have themselves inherited the bulk of their fortunes. 1 I sus- 
pect that the " self-made man " despises the large inheritor just 
as much as the latter despises him. At any rate it is an interest- 
ing sidelight on the psychological effects of Inheritance taxa- 
tion that Carnegie and Leverhulme were strong advocates of 
the Death Duties. 

Finally we have to consider the case of the less ambitious 

1 Pigou, Economics of Welfare, p. 674, note, quotes Irving Fisher : 
"The ordinary normal self-made American millionaire is rather 
disposed, I believe, to look on the inheritance of his millions by his 
children with some misgiving." 




parent, who is concerned for the comfort and social status of 
his children rather than for their fame and active economic 
power, who wishes to endow them with sufficient property to 
secure for them the standard of life to which they have been 
accustomed and to render them free from the fear of poverty. 
This type wants security rather than economic prowess. That 
desire is probably the chief incentive which leads middle-class 
and well-to-do parents to preserve and increase their capital by 
saving out of income, though it is probably not important as a 
motive force for enterprise and active accumulation. " It is a 
quietness to a man's mind to live upon his own and to know 
his heir certain," was the feeling of the yeoman freeholder, 1 
and it is this quietness of mind which the majority of those, 
who engage in business and the professions without any great 
economic ambitions, desire to achieve by saving. In the case 
of the large inheritor, also, who could in fact part with a con- 
siderable portion of his property without bringing his heirs 
within reach of poverty, property is often maintained and 
added to from the feeling that, even if his inheritance was not 
settled by deed or testament, it was meant as a trust for future 

The effect of the taxation of gifts and inheritances on the 
operation of these motives would seem to depend largely on the 
way in which the tax was graded. As in the previous case, it 
does not seem likely that savings would be discouraged by a 
moderately heavy tax, with a moderate steepness of progres- 
sion, on the lines of our present Estate Duty. Indeed, it might 
well lead to more saving on the part of those who have in mind 
a certain definite provision and standard of life for their 
children, or who wish to pass on their own inheritance intact. 

16. But now suppose a tax graded with an eye to abolish- 
ing large inheritances, progressing mildly up to a certain figure, 
and then much more steeply, so as practically to prevent in- 
heritances in excess of that figure. Such a tax would be a 
modified application of Mill's suggestion that a definite limit 
should be set to the amount which anyone may inherit. I have 
1 Quoted in Tawney, Acquisitive Society. 


already argued that it would not be likely to turn the really 
ambitious accumulator into an idler and spendthrift, and that 
he will try to satisfy his ambitions for his children in other 
ways. But the case is different with those whose economic am- 
bitions are confined to the desire to endow their children with 
security or to pass on to them a property as large as or a little 
larger than that which they inherited. If the tax prescribes an 
actual limit to the size of an individual inheritance, then the 
effect on their actions will depend largely on whether or not the 
property which they hoped and expected to leave to their heirs 
exceeds the limit prescribed. Where it does exceed that limit, 
the effect of the tax is bound to be discouraging. The fact that 
the limit is not on disposable estate, but on an individual in- 
heritance, cannot in this case make much difference. If a man 
has preserved or accumulated an estate of 100,000 with the 
main object of leaving it to his three children, and a tax is 
imposed which virtually limits any one inheritance to 20,000, 
he will not be consoled, or stimulated in his desire to preserve 
the property/ by the knowledge that he can escape the full 
rigours of the tax by bequeathing 40,000 to charities or among 
his poor relations. In such a case, I think, he would be very 
likely to entertain the idea of treating himself and his children 
to an expensive tour round the world or some similar form of 
entertainment, as giving better value for the money. 

Obviously the higher the limit prescribed by the tax, the 
smaller the number of such persons who are likely to be dis- 
couraged from saving, and vice-versa. But there does not seem 
to be much point in imposing a very high limit, that would only 
very rarely be exceeded in the absence of such restriction. 1 

17. On the other hand, the discouraging effects of a 
moderate limit, enabling ample provision to be made even for 
those incapacitated from earning, such as the 20,000 given in 
the above example, would gradually wear off in the course of a 
generation or so. The discouragement to saving resulting from 
such a limitation would take effect chiefly among large in- 

1 Except in so far as it sets a precedent which may be improved 
on.- Cp. Dalton, Inequality of Incomes, p. 341. 



heritors, who were preserving or increasing their inheritances 
from a sense of duty to their descendants. But since the tax 
would gradually eliminate the large inheritor, the class most 
likely to be discouraged by it would become less and less im- 
portant as time went on. For example, the father of a family 
of less than five, who inherited 100,000, before inheritances 
were limited to 20,000, would certainly be discouraged from 
preserving his inheritance intact when such a limitation was im- 
posed. But when his heir inherits 20,000, the latter will know 
that, if he has more than one child, he will have to work and 
save up in order to leave his children the maximum that the 
tax allows, and the same amount as he himself inherited. Pos- 
sibly if the tax were removed, he might work harder and save 
more in an attempt to restore the fallen grandeur of his family. 
But I have already argued that a man who is ambitious rather 
than anxious for his family is usually ambitious for his own 
sake also, and is likely to achieve what he can for the sake of 
achievement, undeterred by the frustration of any ulterior 
hope, that may have acted originally as an auxiliary motive. 

18. The net effect of my conclusions in the preceding 
analysis is as follows. The tax under consideration was, it 
will be remembered, a progressive tax falling equally on gifts 
and inheritances, and it was assumed that the tax could not be 
evaded. If such a tax were designed so as to progress not 
much more rapidly than our present Estate Duty rates, I think 
it exceedingly unlikely that it would ordinarily discourage any 
rational person from working or saving. 1 And it is not the 

1 It must be recognised, however, that certain forms of saving 
may be discouraged by the Death Duties namely long-term in- 
vestments for other than purely economic motives. In this con- 
sideration, for example, lay the germ of truth in the common 
complaint that the duties (in their original form, at least) deterred 
agricultural landowners from afforestation. If capital invested in 
afforestation yielded as high a rate of return as other " lock-up " 
investments involving similar risk, there would be no reason why 
Death Duties should be particularly discouraging. But suppose it 
yields only 2 per cent, compound interest, as against say 5 per cent, 
obtainable from other investments, and that landowners have re- 
planted their woodlands partly from reasons of sentiment or a 



function of the economist to foretell what people may do from 
irrational motives in pique or panic. Taking into account 
its effects on those about to inherit as well as on those 
about to dispose of gifts and inheritances, I think that, on 
balance, it would to some extent encourage both work and 

If, on the other hand, the tax were much more steeply 
graded so as to make it impossible or almost impossible to in- 
herit more than a certain sum, it does seem highly probable 
that it would, in certain cases, deter people from saving to a 
marked extent, and to a less extent from working, or, in other 
words, encourage them to consume a good deal more of their 
surplus than they would otherwise do, and to retire from 
economic activities rather earlier in life. But this discourage- 
ment of work and saving would affect a smaller and smaller 
proportion of the people as time went on, and would be in- 
creasingly offset by the encouragement to work and save given 
to the younger generation of the leisured classes by the 
prospect of reduced gifts and inheritances. 

Neither sort of tax would be likely to discourage work and 
saving on the part of those with no dependants to provide for, 
or those who were accumulating from the love of power and 
feeling of feudal responsibility. Then, if by reason of a Death 
Duty that may be imposed an unknown number of times before the 
trees grow up, the profitableness of such an investment is still 
further reduced, non-economic motives may cease to outweigh the 
advantages of other investments giving a higher yield and a more 
immediate return. 

In fact, however, since the Finance Act of 1910 ( 61 (5)), the 
owner of woodland has been in a favoured position as regards 
Estate Duty. The value of growing timber is not taken into account 
in estimating the value of his land for the purposes of the duty, but 
the latter is payable (at the rate at which it was due on the rest of 
the estate) in respect of money received from the sale of felled 
timber during the lifetime of the heir. 

Possibly, in the circumstances of the time, an allowance of this 
kind may be expedient, but it is in the nature of a subsidy, and the 
fact remains that Death Duties per se are not the reason why land- 
owners prefer to put their spare cash into stocks and shares rather 
than trees. 



achievement. And these are not a negligible proportion of the 
saving population. 

In general, it seems that up to a certain point, as regards 
rate of tax and steepness of progression, an inheritance tax will 
act, in some degree, as an inducement to earn more or to re- 
trench personal expenditure. The point at which the rate of 
tax becomes so high or the progression so steep that saving is 
discouraged, cannot of course be foretold; but I should judge 
that it would not nearly be reached by a tax graded at the same 
rate of progression as our present Estate Duty. But that is only 
a matter of opinion on which, at present, there can be no con- 
clusive evidence. 

19. Another theoretical problem, with some practical 
significance, is to consider the relative advantages and disad- 
vantages from the point of view of productivity, of a yearly 
tax on incomes from property and of a Death Duty or Inherit- 
ance Tax, graded in such a way that both have approximately 
the same effect on the distribution of private incomes and 
property. A detailed analysis of the problem is beyond our 
scope in this book. But it is interesting to recall the opinion of 
the Colwyn Committee (Majority Report) that the present 
Estate Duty " is decidedly less damaging to saving and enter- 
prise " than a yearly tax bringing in the same revenue would 
be, " if that tax were confined to income corresponding (as 
closely as possible) with the capital on which the Estate Duty 
is paid," and graduated with similar steepness. 1 

" Under the yearly tax," say the Committee, " those who 
lived wholly or mainly on investment income might, on 
balance, be stimulated (and in some cases even physically com- 
pelled) to effect some extra economies. On the other hand, the 
differentiation against income from savings as compared with 
earned income would be more obvious in a yearly tax than in 
a tax deferred till death. It seems probable, therefore, that to 
some extent it would tell against saving out of earned income. 
In the larger estates the burden would be a serious addition to 
the Income Tax and Super-tax, and would be more depressing 
1 P. 194, par. 534. 


than the prospect of Estate Duty at the uncertain date of 

20. Many reasons can be given for desiring that progres- 
sive taxation should differentiate, so far as practicable, against 
incomes and property not gained as the result of personal 
economic services. And a Death Duty or a tax on Inheritances 
and Gifts is more in accordance with this principle than a tax 
on all property irrespective of whether " saved " or inherited. 
But, in the first place, we have got to rid our minds of the idea 
that all property acquired otherwise than by inheritance and 
gift represents an increase in the capital goods of the com- 
munity brought about by the action of the acquisitor. 1 It is 
clear that much private accumulation is neither the result nor 
the cause of improvements in productivity, but is merely the 
outcome of a redistribution of claims to income from existing 
capital goods or a reshuffling of property values, due to ex- 
ternal and fortuitous causes. " Many of the largest fortunes," 
said Marshall, " are made by speculation rather than by truly 
constructive work; and much of this speculation is associated 
with anti-social strategy." 2 Clearly there is no point in en- 
couraging this form of " enterprise and saving," and a tax that 
differentiates consciously or unconsciously in its favour has in 
this particular respect no special merit. 

Nevertheless the distinction between "earned" and "un- 
earned " property remains important, even if the dividing line 
is in practice often obscure. 

In the second place, practical considerations of revenue and 
administration are of the greatest importance. It would, for 
example, certainly be impracticable as well as theoretically 
undesirable to replace the whole of our existing Income and 

1 Rathenau, In Days to Come (trans. E. & C. Paul, pub. 1915), 
thinks large fortunes acquired in a lifetime are due either to specu- 
lation or the acquisition of a monopoly (in the widest sense). " In 
view of the brevity of human life, a moderate competence is the 
utmost that can be saved out of the regular income from labour. 
Erroneous is the popular notion that anyone can grow wealthy 
simply in virtue of thrift " (p. 111). 

8 Marshall, Principles, p. 719. 



Super-taxes by a Death Duty or Inheritance Tax. In order 
to raise by the latter method the same revenue that results 
from the former taxes, when Income Tax is 5^. in the , you 
would probably have to try to confiscate all estates passing at 
death or by gifts inter vivos in excess of about 5,000. No 
power on earth could stop the wholesale evasion that would 
ensue, and most well-to-do fathers beyond middle age would 
cease to save. Obviously, as a main source of revenue in the 
modern state, no form of Death Duty has the same possibilities 
as a general Income Tax. But, as a means of influencing dis- 
tribution without adversely affecting productivity, Inheritance 
Taxation has not yet found the limit of its utility. 1 The prac- 
tical problem of evasion, rather than the theoretical problem of 
discouragement to saving, remains, as Sidgwick predicted, the 
great stumbling-block. 2 

1 Cp. Minority Report, Colwyn Committee, par. 256. " In our 
view the death duties are a most valuable source of revenue of 
which by no means adequate use has already been made." I think 
the Death Duties could be reformed and extended so as to raise at 
least 30 or 40 millions more than they do now without damage 
to productivity or too great danger of evasion. 

2 " The limits of taxation on inheritances will be practically deter- 
mined for the financier rather by the danger of evasion through 
donationes inter vivos than by the danger of checking industry and 
thrift." Sidgwick, op. cit., p. 580. 




"We know that the astuteness of lawyers and the 
vigilant care for personal interests continually are at 
work to defeat and escape the operation of the law 
and this with such extraordinary success that, although 
there has been an immense increase in the personal 
property of the country, such increase is scarcely trace- 
able in the tables of your Legacy Duty . . ." MR. 
GLADSTONE on the Succession Duty Bill, 1853. 1 

1. EVASION of a tax is primarily a technical problem for the 
administrator and the lawyer. But its special significance in 
the case of the Death Duties makes it a problem which the 
statesman and the economist cannot afford to neglect. Methods 
of evasion may be divided into three categories those that are 
strictly legal, those that are not illegal because the law was not 
sufficiently well drafted or the executive sufficiently powerful 
to make them so, and those that are definitely illegal. The 
first two kinds of evasion are usually the most important. 

At the present time, a man of property can legally enable his 
executors to avoid paying the British Death Duties in any of 
the following ways. He can invest it in real estate outside Great 
Britain; he can leave his native land, acquire a foreign domicile, 
and invest his property in Bearer Securities or in the registered 
stocks of companies registered abroad; he can give it to his 
family at any period by way of marriage settlement; he can 
give it without reservation before three years from the date of 

1 Quoted by Soward and Willun (Taxation of Capital [pub. 1919]), 
who comment: " Mr. Gladstone's remarks are as applicable to the 
Estate Duty to-day as they were when spoken of the Legacy Duty." 
The authors, with intimate official knowledge of the subject, give an 
excellent account of property exempted from and evading the Death 
Duties, pp. 258ff. 



his death and, as regards, charitable gifts, before one year from 
death. The last loophole of gifts is obviously by far the most 
important. But the first two alternatives are not negligible and 
are, from the point of view of British industry, very undesir- 
able; for evidently the effect of these loopholes is that the Duty 
differentiates against savings invested in Great Britain. Equally 
evidently these exemptions were made not from choice but 
from necessity or for convenience of administration. It is cer- 
tainly a bad plan to say you will tax what you cannot tax; but 
it would be interesting to know if all possibilities of catching 
these foreign investments have been fully explored. It seems 
conceivable that they have not, and the difficulties do not, to a 
layman, seem insuperable. 1 

2. Among the means by which one may cheat the purpose 
of the law in a legal manner, the chief is the private company. 
In the preface to his admirable treatise on Private Companies, 
Sir F. Palmer declares that he sets out to show " why in the 
words of a Chancellor of the Exchequer everybody, from a 
peer downwards, converts himself into a private company." 
One of the reasons given is that " conversion affords consider- 
able facilities for the working out of plans for avoiding or 
minimising as far as practicable the heavy duties imposed by 
the Finance Acts of 1894 and 1910. An owner may convert 
his business and distribute shares, and yet, while retaining con- 
trol and a large income, can avoid in a great measure the Death 
Duties. Moreover, the shares of a deceased member, which 
his executors are bound to sell to the continuing members at 
what may be a comparatively low figure, are for the purposes 
of death duties only valued at that figure." z 

By the Companies (Consolidation) Act, 1908, a private com- 
pany need not have more than two members, and it is quite un- 

1 Bearer securities lodged in foreign banks would certainly present 
some difficulty. But, in general, all states which impose a Death 
Duty on property within their territory should be able to give in- 
formation as to the property of British nationals assessed by them. 
And there is no reason why both country of origin and of domicile 
should not take their share of such property. 

a Palmer, Private Companies (Topham Edn., 1918). My italics. 



necessary that both should have large, holdings. Nor need the 
actual beneficiaries 4 names appear in the register held at Somer- 
set House, since their shares can be entered in the names of 
trustees. Complete power over the private company can be 
vested in the former owner as " governing director," who has 
power to act as he likes, resign when he likes, appoint as 
directors whom he likes, and to settle the dividends and 
directors' fees, or hi other words his own " salary " as govern- 
ing director. Nor need the disposal of the profits come under 
public scrutiny, since there is no obligation to file or publish 
accounts or balance sheets. 1 

This admirable method of artificially reducing the value of 
one's property, and treating oneself to a salary, has only one 
drawback namely, the cost of registering the company, and 
the stamp duty on transfers of shares. But, says Palmer, 
there are various expedients legitimately available which assist 
materially in minimising the expenses." In any case the stamp 
duties are clearly not as high as the avoided death duties (and 
perhaps Super-tax) would be. 

Clearly the facilities given to private companies by Company 
law were never intended by legislators to be used for such pur- 
poses. And Mr. Churchill, in his 1925 Budget, expressed his 
intention of looking into the matter. But it does not appear 
that anything really effective has yet been done. 2 Yet it seems 
perfectly practicable to require that every private company 
should furnish to the officials concerned full particulars con- 

1 The Profit and Loss Accounts are, however, open to scrutiny 
by the Inland Revenue authorities for Income Tax purposes. 

2 By means of a private company it used to be possible to avoid 
Super-tax by causing the company to pile up reserves instead of pay- 
ing out all dividends as income. By Section 31 of Finance Act, 
1927, however, the Commissioners of Inland Revenue are now em- 
powered to treat profits put to reserve as private income for Super- 
tax purposes, where in their opinion the proportion of profits not 
distributed in dividends is unreasonably high. The objection to this 
regulation is that, while it does not tackle effectively the problem 
of evasion by Private Companies, it is liable to cause perfectly 
genuine trading concerns to reduce their corporate savings and 
enlarge their dividends. 



earning the nature of the company and its operations. The 
Commissioners of Inland Revenue could then be instructed to 
treat private family companies that had no bona fide trading 
function as shams for the purposes of taxation. There does 
not, indeed, seem to be any adequate reason why registration 
as private companies should not be refused to such con- 

3. With so many loopholes for legal evasion illegal evasion 
becomes unimportant. But if the former were stopped up, the 
latter might well become a greater problem. In the case of 
cash in the house or household goods, it is evident that there 
must often be opportunities of secretly removing part of an 
estate before the probate valuer comes along. But this method 
of evasion is usually likely to be unimportant in the case of 
large estates, of which no considerable part can conveniently 
be kept in cash or furniture. But if there were a considerable 
incentive to do so, wealthy persons might revert to the practice 
of earlier times in treating plate and jewels as the most desir- 
able and secure investment. Bearer bonds seem to offer pos- 
sibly greater advantages, since they yield a money income, 
but their possession might be traced through coupon 
dealers. 1 

It is a common custom among well-to-do parents to invest 
part of then* property in the joint names of themselves and their 
children. If the parent retains a beneficial interest in such in- 
vestments, they are legally liable to Death Duties. The sur- 
viving joint-owner can, however, merely on proof of death, 
obtain possession of the shares from the bank or company 
holding them, and the latter is not required to notify the tax 
officials, nor is it liable to pay the tax. " All that is necessary 
to meet these cases," say Soward and Willun, is that the bank, 
agency, or company (holding the assets) should be required to 
call for a certificate from Inland Revenue that Estate Duty has 
been paid on them. 

1 See remarks in Note by Board of Inland Revenue to Colwyn 
Committee on Rignano Scheme. App. XXVI to Report, p. 177 
(lines 9-13). 



Lastly, some illegal evasion takes place owing to under-state- 
ment of assets or over-statement of debts by executors or ad- 
ministrators. It appears that, in Scotland, the latter are entitled 
to administer only those assets named in the probate inventory. 
But, in England, an executor may recover any asset of the de- 
ceased, whether included in his estimate for probate or not, 
provided he can show that sufficient duty has been paid to 
cover that asset alone. Thus, "he can recover assets worth 
many times over the amount on which Estate Duty has been 
paid." ' 

4. I have left till the last for consideration the most diffi- 
cult and most important problem presented by perfectly legal 
and straightforward gifts between the living. Those made 
within three years of death are now liable to Estate Duty, with 
two main exceptions gifts for public or charitable purposes 
made more than twelve months before death; and gifts made in 
consideration of marriage, which are exempt at any time. 
There is, no doubt, much to be said for a differentiation in 
favour of charitable and public gifts; and I have previously 
suggested that this differentiation might be extended to be- 
quests by will for the same purpose. But no economic reason 
can be urged in favour of the complete exemption of marriage 
settlements. It would be a desirable and immediately practic- 
able reform to abolish this exemption. 

It is, however, quite clear that the Estate Duty, with its 
present three-year period of liability, does not, in any case, 
catch more than a small minority of gifts between the living, 
and if the rates were raised it would probably catch a still 
smaller proportion. I have already pointed out that this is one 
of the chief defects of the Duty, not merely as a means of rais- 
ing revenue, but also as a means of reducing inequalities of 
gratuitous property particularly as a much larger proportion 
of large than of small estates escapes in this way. The Estate 
Duty now falls yearly on some 6,000,000 of gifts made within 
the statutory period, and about 60 per cent, of this sum is in- 
cluded hi estates of over 50,000.' The total gifts made 
1 Soward and Willun, op. tit., pp. 258ff. 


during life cannot now be ascertained even approximately, but 
we know what it must exceed, by referring to the figures of 
gifts taxed for Stamp Duty. Generally speaking, all gifts of 
real property and registered stocks and shares are subject to 
Stamp Duty, with the one important exception of British 
Government stocks. Here again marriage settlements are not 
counted as gifts and are taxed at a specially low rate. The 
table on page 247 shows the estimated value of property 
conveyed as dispositions inter vivos during recent years; 
the estimates, being derived from figures of Stamp Duty paid, 
are only approximate. 

These figures of gifts paying Stamp Duty form an unknown 
proportion of the total gifts. The exemption of Government 
stocks is no doubt the chief reason why the post-war totals in 
the table show such a small increase over the pre-war totals. 
But one must also remember that property values, particularly 
of the fixed interest stocks likely to form a large portion of 
settlement property, did not increase in proportion to prices. 
Apart from that, gifts of property, which do not require some 
official register of transfer, are exempt. Thus there is no record 
of gifts of cash, bearer bonds, household goods, and so on. 
The grand total of gifts between the living is to-day not likely 
to be less than 60,000,000 to 80,000,000 a year and is possibly 
very much more. Of this, an unknown fraction probably not 
as much as a tenth is given for public and charitable pur- 

1 The figures for 1925-6 (Great Britain) were : 


Estates 100 to 50,000 . 
Estates over 50,000 

All estates over 100 


Gifts inter 

Gifts % of 









poses. 1 It is highly probable that, on the average, persons with 
large estates, of say over 50,000, give away to heirs and others 
during their lifetime not less than a quarter of their property. 
Many conveyancing solicitors will probably consider this a 
serious under-statement, since the evasion of the Death Duties 
seems now to be one of their principal functions. 

5. To give is usually considered a charitable act deserving 
of praise. Even gifts to children which anticipate their in- 
heritances are more altruistic than bequests by will when death 
forces the owner to part with his property, and have the prac- 
tical advantage that they come to the heirs at an earlier age, 
when assistance is more likely to be required. 2 No economist 
wishes to dry up the springs of charity or to force a rich man 

1 For the proportion of property passing at death bequeathed 
for charitable purposes, see Chapter IV 2. 

2 See remarks in Chapters VIII and IX on superior advantages of 
gifts over bequests at death. Sir Josiah Stamp (in his Presidential 
Address to British Association, Sec. F., 1926) quotes with approval 
the following statement by the Whethams (The Family and the 
Nation) : " Since the assumption of the responsibility of offspring 
falls on those of the younger generation whose financial position, 
even in the upper classes, is usually not yet secure, it should become 
an increasing habit for the older generation, where they have it, to 
distribute a substantial part of their property during their life-time. 
Such a distribution should not excite the animosity of the Chancel- 
lor of the Exchequer. . . . Those in the prime of life can make the 
best use of wealth in the service of the nation. May each genera- 
tion as they grow older learn to relinquish it in time to watch their 
successors meet their responsibilities fully." 

Stamp says : " There could be no better eugenic or sociological 
institution than a kind of moving annuity which should pass from 
generation to generation, not at the death of each person, but from 
him to his children at a point when his personal need for it has 
become less and when his son's need for it has become greatest " 
(Ec. JnL, Sept., 1926, p. 372). I have previously suggested that a re- 
tention of the Estate Duty at death along with a Gifts and Inherit- 
ance Tax would give some encouragement to gifts without leaving 
their inequality of distribution unchecked. But it would also be 
feasible to give special rebates to a new type of settlement, in 
which property is left, for example, to A till he reaches the age of, 
say, fifty years, then to B till the same age and so on. I have never 
yet heard of such a settlement being made. 




to retain his property till the last possible moment. But it is 
clearly anomalous, as well as inequitable, to impose a heavy 
tax on property passing at death (with the double object of 
raising revenue and reducing gratuitous inequality) and not to 
check the obvious alternative method by which the same in- 
equality may be perpetuated, and which men with foresight 
and the luck of a long life are certain to exploit. 

It has sometimes been held that " the reluctance of property 
owners to part with their own, even to their nearest and 
dearest," is an effective check on gifts inter vivos. 1 But it 
clearly is not so in present-day Britain, and there is little reason 
for this reluctance, when by the mechanism of the private com- 
pany a man can give away property and yet retain control of 
it and receive the bulk of the income from it. And if private 
companies were treated as is suggested above, so as to make 
this method more difficult if not impossible, it is still possible, 
particularly as between parents and children, to give property 
on the honourable understanding not, of course, legally en- 
forceable or supported by traceable documentary evidence 
that an agreed part of the income, and a measure of control 
of the principal, is to be retained by the donor for life. 

I repeat what I said in the last chapter, that an effective and 
equitable system of Inheritance Taxation of a drastic character 
must involve some taxation of gifts, more extensive than that 
in force under our present Death Duties. 

6. There are two suggested lines of reform. The first is 
to extend the period before death during which gifts are liable, 
aggregating the latter with the estate left at death in assessing 
Estate Duty. The second is to impose progressive taxation on 
all large gifts at the time when they are made. 

The theoretical objection to the first proposal is that it is an 

unsatisfactory compromise, and inequitable in the sense that 

the liability of gifts to Estate Duty jyill be largely a matter of 

luck. The more long-lived persons and these are on the 

whole the richer will be able to hand on a larger proportion 

of their property during life than those whom death catches at 

1 See Taussig, Principles, Vol. II, p. 508. 



an earlier age. Thus those whose parents die young will re- 
ceive a smaller proportion of the latter's property than those 
whose equally rich parents live to a ripe old age. Yet, if any- 
thing, the needs of the former are likely to be greater than the 
needs of the latter. Moreover, the parents who die young are 
likely on the whole to leave less property than those who have 
their full span of life in which to work and save. Hence to fix 
an arbitrary period before death during which gifts are liable 
to duty results to some extent in a fortuitous reduction of the 
intended rate of progression of the tax. Theoretically it would 
be a better compromise to decree that all gifts made by a donor 
after a certain age will be liable to tax. 

Lastly, one effect of increasing the period during which gifts 
are liable would be to stimulate larger donations at an earlier 
period so as to escape liability. 

The chief administrative objection to the proposal is that 
gifts within three years of death are difficult enough to trace, 
and that 'any considerable extension of the period would 
render the task of efficient administration almost insuperable. 1 

But there is a second practical objection. Let us suppose 
that the period were extended to ten or fifteen years before 
death. Under the present system, gifts traced as made during 
that period would be added to the estate left at death, and the 
whole taxed for Estate Duty at the appropriate rate. But such 
gifts might considerably exceed the estate left at death, in some 
cases; and the duty payable on the whole might exceed the 
assets retained By the deceased. In such cases, the present 
practice of making executors liable for Estate Duty would 
clearly be impracticable. Yet the alternative of requiring the 
recipients of the gifts to pay their share of the duty many years 
after the gifts had been received might well present insuperable 
difficulties, particularly if the duty was high and the donees had 

1 See Colwyn Committee, Maj. Rept., para. 1022. "To increase 
the three-year period would be of doubtful assistance, as it would 
increase the difficulty already experienced by executors in tracing 
dutiable gifts. Moreover, it might tend to the wider adoption of 
methods which do not depend for their success on the length of the 
testator's life." 



previously squandered the major portion of their gifts. Such 
cases would no doubt be exceptional. But there might be many 
other cases, in which the bulk of the property retained till death 
was bequeathed to other persons than those who had received 
the gifts; yet, according to present practice, the former would 
in effect bear the tax payable in respect of gifts received by 

7. The second more drastic proposal the taxation of all 
large gifts during the life-time of the donor has obvious 
theoretical advantages. But it certainly presents practical 
problems which may well cause anxiety to administrators, who 
have a very proper conservatism as regards methods of taxa- 
tion. The chief practical difficulties may be briefly considered 
under three heads: 

(1) What check is there on concealment of gifts? 

(2) Who is to be responsible for paying the tax and when? 

(3) Are the rates of tax to be graded according to the size 

of the individual gift or according to the aggregate re- 
ceived over a period, or according to some other plan? 


8. Gifts made by straightforward transfers of real estate 
and of registered stocks and shares cannot be concealed. With 
the exception of British Government stock (the inclusion of 
which would present no administrative difficulties) they are al- 
ready taxed for Stamp Duty, and the Gifts Tax could be im- 
posed and paid when the Stamp Duty was pid, or in lieu of 
Stamp Duty. Gifts by way of investments in the joint names of 
the purchaser of the investment and the recipient of the in- 
come could also be traced, at any rate on the death of the donor. 

But there remain a multitude of openings for gifts that can be 
concealed, the chief of which we have previously described. 
Clearly the tax collectors would have to call for a declaration 
of gifts by the prospective taxpayers. But the problem remains 
how to ensure that such a declaration is sufficiently reliable. 

Persons with incomes over 2,000 a year are already required 
to make a full return of income for Super-tax. If the Gifts Tax 



were confined to such persons, a return of gifts received (in 
excess of, say, 500), and of the amount of Gifts Tax paid, if 
any, might be demanded on the same form. 

The first check on dishonest statement would be a heavy 
penalty on concealment of gifts. The second check would be a 
record of transfers of registered property, which might be re- 
quired, as suggested above, to pay the tax at time of transfer. 
The third check would be the fact that an unexplained and ex- 
ceptional increase or decrease in income as between one year 
and another would arouse suspicions and lead to investigation. 1 
Lastly, if we also retain the present arrangement whereby gifts 
made within three years of death have to be included in the 
executors' affidavit for Estate Duty, the chance that the donor 
might die within three years after making a gift which might 
in this case be traced from another source would act as a 
check on its concealment in the donee's declaration. An in- 
crease of the statutory period to five years is to be urged on 
the same grounds. 


9. Clearly the donee would have to be responsible for 
paying the Gifts Tax. In the case of a settlement on A for life 
with remainder to B and so on, A, the first beneficiary, would 
naturally be considered the donee responsible for Gifts Tax, 
since B would normally be liable for Legacy or Succession 
Duty. Whenever possible the tax should be deducted before 
the gift is received. It has been suggested that this is possible 
in the case of all gifts and settlements now paying Stamp Duty, 
as well as in the case of transfers of Government securities. In 
other cases, it would hardly be possible. It is suggested that in 
these other cases, the Gifts Tax should be assessed at the end of 
each financial year when Income and Super-tax are assessed. 

1 For an argument against this check, however, see the Inland 
Revenue's Memo on the Rignano Scheme, Appendix XXVI to 
Colwyn Committee Report. "These enquiries . . . might drive 
the trouble underground and lead to further falsification of Income 
Tax Returns, with consequent reactions on the yield of Income Tax 
and Super-tax." 



It is probably better that the tax should be a capital rather 
than an income tax, because otherwise quite large gifts of 
property not yielding a definite money income would escape. 
In certain cases, of course, provision for payment by instal- 
ments would have to be made. 


10. I have indicated above that the Gifts Tax might, at 
first trial at any rate, be confined to Super-tax payers, who are 
now called upon to declare their full incomes. This class now 
numbers about 100,000 persons, not an overwhelming number 
for our remarkably efficient administration to deal with in 
some detail. The adoption of such a proposal would mean 
that there would be a rough progression of the tax according 
to total income, in addition to a more refined progression ac- 
cording to the amount of gifts received. As regards the latter 
method of progression, it is clearly desirable that the tax should 
vary, not according to the size of individual gifts, but accord- 
ing to the total property received by way of gift. If this were 
not the case, it would be simple for large gifts to avoid a high 
rate of tax, by making a number of smaller gifts over a period. 
But there is no reason why if the tax is practicable for indi- 
vidual gifts it should not also be practicable when progressive 
according to the aggregate of gifts. Once you have a record 
of Gifts Tax assessments, to ascertain the total of a man's pre- 
vious gifts, in order to decide the rate of tax on a new gift, is 
merely a matter of good filing and indexing. 1 Thus suppose 
the tax is graded so as to levy 10 per cent, when gifts amount 
to 10,000 and 20 per cent, when they amount to 30,000. A 
man, who received his first gift of 10,000 in 1930 and a second 
gift of 20,000 in 1935, would pay a tax of 1,000 (10 per cent, 
of 10,000) in 1930 and another tax of 5,000 in 1935 (20 per 
cent, of 30,000 minus the previous tax of 1,000). 

A Gifts Tax of the nature outlined could evidently be related 
to a progressive tax on inheritances of the same character, so 

1 A sort of ledger account would be kept for each taxpayer the 
balances being continually carried forward. 



that the rates payable in respect of inheritances were partly de- 
termined by the rates payable in respect of gifts, and vice-versa. 
In this way, for example, a man who received 30,000 by way 
of gifts and 70,000 by way of bequests would pay the same 
total tax as the man who received 70,000 by gifts and 30,000 
by inheritance. 

Gift Taxes in combination with Inheritance Taxes have been 
tried with indifferent success in some of the United States; and 
in France, where gifts inter vivos are supposed to be taken into 
account in assessing the legitime of an estate, taxes on dona- 
tions accompany taxes on successions. In neither case is there 
the British standard of efficiency in tax collection, so that one 
cannot draw from such examples inferences applicable to 
Britain. The only competent judges of whether or not a Gifts 
Tax, such as that suggested, is practicable in Britain, are the 
Inland Revenue officials; x and even their opinion is not final. 

1 The latter have made remarks pertinent to the subject in 
Appendices XXVI and XXVJI to the Colwyn Committee Report. 
But no definite opinion is given on this particular subject. 




1. VARIOUS proposals have been made in recent years for 
the reform and extension of the Death Duties, with the double 
object of effecting by this instrument both an increase in re- 
venue and a more effective reduction of the inequality of pro- 
perty, without unduly diminishing the incentive to accumula- 
tion. They are based primarily on the proposals of Professor 
Eugenio Rignano. Rignano has clothed his proposals in 
various forms, intended to be acceptable in different contexts. 
In the most recent English exposition of his ideas, 1 he puts for- 
ward two alternative schemes a " maximum " and a " mini- 
mum project." The "maximum project" is intended as a 
socialistic measure for the gradual transference of land and in- 
dustrial property to the State or to organisations under public 
control. The " minimum project " is intended rather as a fiscal 
measure, more suitable, in Rignano's view, to English and 
American tastes. 

With the desirability or demerits of the ultimate intention of 
Rignano's " maximum " programme we need not here concern 
ourselves, since the fiscal implement proposed need not neces- 
sarily be used as more than a means of raising revenue for 
whatever purpose that revenue may be required. It involves, 
however, the intrpduction of two new principles into a system 
of Death Duties. The first is that a distinction should be made 
between that part of a man's estate which he himself accumu- 
lated and that part which he inherited, and that Death Duties 
should differentiate in favour of the former. The second new 
principle introduced in the "maximum" project is that 

1 The Social Significance of the Death Duties, J. C. Stamp and 
Rignano (1926). Rignano's scheme was previously introduced to 
the English public by Hugh Dalton, Inequality of Incomes (1919). 
Pigou also refers to it in Economics of Welfare. 



taxation should be graduated according to the number of times 
that the inherited property has been passed on, till eventually 
the tax becomes 100 per cent. 1 In the simplest and most drastic 
form of the scheme, it is proposed to abolish an inheritance in 
the third generation. For this purpose, each estate is to be 
divided into three sections, that which the deceased did not in- 
herit, that which he inherited as the result of his immediate pre- 
decessor's accumulation, and that which came to him as the 
result of accumulation two generations back. On the first por- 
tion (if any) the tax would be no higher than it is to-day; on the 
second portion it would be, say, 50 per cent., and on the third 
portion 100 per cent. Thus nothing would be capable of in- 
heritance from beyond the third generation. 

2. If we assume for the moment that the distinction be- 
tween the three portions of an estate will be sufficiently clear in 
the large majority of cases, and that the administrator will be 
able to trace all gifts and inheritances then the Rignano 
scheme has one great economic advantage over existing 
methods of inheritance taxation. It cannot be held to dis- 
courage saving. Indeed, Rignano's claim that it would en- 
courage accumulation seems well founded. For those desirous 
of passing on property to their children would know that every 
they saved, would have more value for that purpose than the 
of their own inherited property, and the higher, compara- 
tively, the duty on the latter, the greater the relative utility of 
their savings. It is true that their savings would be greatly 
diminished by the time they reached their grandchildren and 
annihilated by the time the great-grandchildren came to inherit. 
But, in the first place, it is reasonable to suppose that a man 
is more interested in his immediate than in his more distant 
descendants, 3 and, in the second place, in so far as he is inter- 

1 I have said Rignano introduces two new principles; but in effect 
these are merely different aspects of the same principle, which 
Rignano calls " progression in time." 

a " I am convinced that the mental horizon, which is so powerful 
an agent in business calculations during life, which reduces the 
present value of a reversion over fifty years hence to a negligible 
figure, is even more restricted for events after death. The fate of 



ested in the latter, the Rignano scheme would provide an added 
incentive to him to bring up his children as earners rather than 
inheritors. 1 

3. Certainly, on the previous assumption of perfect ad- 
ministrability, a tax on the Rignano system would be more en- 
couraging to accumulation, or, if you please, less encouraging 
to decumulation, than a non-differentiating tax, progressive ac- 
cording to the whole estate passing or according to benefits 
received by inheritors, and graded as steeply in its own way so 
as to achieve the same revenue. But it would, on the other 
hand, be less favourable to equality of distribution, and less 
equitable in its effect on individual heirs. Under the Rignano 
" maximum " project, the tax is graded neither according to the 
inheritor's needs nor according to his ability to save. The size 
of an heir's inheritance would depend almost entirely on what 
his predecessor had saved, and the extent of the latter's and of 
his own savings would depend inter alia on the size of their re- 
spective inheritances. Rignano seems, indeed, to neglect the 
fact that what a man inherits has considerable influence on his 
capacity both to earn and save. His "maximum" scheme 
takes no account of differences in capacity due to this or any 
other cause. Hence, it is conceivable that, while it would re- 
duce the sum total of inherited property and the absolute in- 
equality of its distribution, it might not reduce the relative 
inequality of inheritances. 2 

one's savings (with the special c&se of landed estates ruled out) after 
say thirty or forty years, has but a negligible influence on present 
effort or production." (Stamp, "Inheritance as Econ. Factor," 
E.7., Sept., 1906.) 

44 Everyone had a great interest in his children, and it might be 
he had a certain interest in his grandchildren; but after that interest 
became extremely remote, and it was that fact which underlay and 
supported the Rignano scheme." (W. H. Coates, in discussion on 
H. C. Scott's paper in SJ., March, 1926.) 

1 In the case of those who have no family dependants, or whose 
children are already provided for, the Rignano scheme would have 
as little effect as any other system of Death Duty. 

2 Suppose for example what is not impossible that persons 
with equal abilities and needs can make equal proportionate addi- 



4. In the second place, the Rignano principle differen- 
tiates against the children of short-lived parents, since the latter 
have less time and opportunity to save. Yet it is in such cases 
that the need for an inheritance is often greatest. Those 
parents who die young have, in any case, much smaller estates 
on the average than those who die at a ripe old age. It seems 
that the Rignano scheme would increase rather than reduce the 
inequality due to this factor, and in this respect, the tax would 
be markedly regressive in its effects. One has only to look at 
the figures, given in a previous chapter, of the average estates 
left by persons dying at different ages, to see that this objection 
is by no means hypercritical and could not be met adequately 
by special remission of the tax in " hard cases." 

5. When we turn to Rignano's " minimum " project, both 
the above objections have much less force. This proposal, as 
adapted to English conditions, 1 is that the present Estate Duty, 
while remaining progressive according to the total amount of 
the estate, should also differentiate against the inherited portion 
of the estate. This would involve dividing the estate into two 
parts instead of three as in the " maximum " project ** in- 
herited " and " earned," It is suggested, by way of example, 
that the " earned " portion should be taxed at the present scale 
of rates, and the inherited portion at double that scale. 3 Modi- 
fications .of this proposal have been suggested by Dalton and 
Henderson among others. 3 From the point of view of equity 
and of effects on distribution, a tax on these lines has clear ad- 
vantages over that proposed in the " maximum " project, since 
the differentiation between "inherited" and "earned" pro- 

tions to an initial property with equal effort. Then if everyone in- 
herited at the same age, had the same length of life, and the same 
industry and thrift and if property values were stable the distri- 
bution of their estates after taxation on the Rignano principle 
would be relatively just as unequal as before. 

1 Social Significance of Death Duties. Part III, Chap. II. 

a Ibid., pp. 127-9. 

* See Dalton, Inequality of Incomes, Chap. X, and Evidence be- 
fore Colwyn Committee on National Debt. H. D. Henderson, In- 
heritance and Inequality. 

I 257 


petty can be combined with some form of graduation accord- 
ing to capacity to save and according to the benefit received by 
the heir. Moreover, although Rignano himself seems to con- 
sider it less drastic than his first proposal, it could in fact be 
even more drastic. For example, instead of reaching 100 per 
cent, in inheritances transmitted from the third generation, this 
rate could, if desired, be closely approached in the second 
generation, in the case of very large fortunes. 

6. As an incentive to accumulation, the single distinction 
between inherited and " earned " property seems no less ad- 
vantageous than the more elaborate distinction suggested in the 
" maximum " project. In the most extreme case, the know- 
ledge that what he accumulates will never pass beyond his im- 
mediate heirs may have a more depressing effect on the ac- 
cumulator than the knowledge that it will not pass beyond the 
third generation. On the other hand, it may be argued, that 
the knowledge that what he inherits will revert to the State on 
his own death will act as an even sharper spur to fresh acquisi- 
tion than the prospect of his inheritance reverting on the death 
of his children. 

7. It is interesting to observe that it would be possible, 
on a purely actuarial basis, to convert a tax on the Rignano 
principle, into a direct tax on inheritances at the time they were 
received. The actuarial equivalent of the " maximum " pro- 
ject, in such a case, would be an inheritance tax (in addition to 
the existing Estate Duty) graded simply according to the age 
(or expectation of life) of the beneficiary and the age (or expec- 
tation of life) of his heirs. Taking thirty years as the mean sur- 
vival period of a generation, and 4 per cent, as the rate of dis- 
count, a tax of 50 per cent, on the second passing of inheritances 
(i.e. on the death of inheritors) and 100 per cent, on the third 
passing (i.e. on the death of the original inheritor's heirs) is the 
equivalent of a tax averaging just under 20 per cent, of inherit- 
ances when first received. 1 On the same lines of reckoning, 

1 100 discounted thirty years ahead at 4 per cent, per ann.=ab. 
29-44. 100 discounted sixty years ahead =ab. 8-67. Therefore 
the actuarial present burden of a tax of 50 per cent, on 100,000 in- 



confiscation of inheritances on the death of the inheritors is 
equivalent to a tax averaging nearly 30 per cent, when they 
inherit. The physical effects of the Rignano scheme would, of 
course, differ from those of its actuarial equivalent in so far as 
the actual periods of survival would differ from those estimated 
in individual cases, even if not in the case of the average or 
total. And the psychological effects would be different in so 
far as people are not guided by actuarial considerations, even 
when they ought to be. Nevertheless, from the point of view 
of the Exchequer, and the immediate value of the tax as a fiscal 
instrument (and in the case of those desiring to insure against 
Rignano duties), the preceding calculations have a practical 
significance. 1 They serve also to illustrate the fact that the 
Rignano scheme whether " maximum " or " minimum " is 
not so revolutionary as has sometimes been supposed. And we 
shall see later that, in their practical working, the difference 
between an inheritance tax levied when the inheritance is re- 
ceived, and one deferred till the inheritor dies, tends to become 
a difference of degree rather than of principle. 

8. Hitherto, we have discussed the merits and demerits of 

heritance passing after thirty years is about 14,720; and of a tax of 
100 per cent, on the remainder (50,000) sixty years hence, is 4,340, 
Total present burden 19,060=19 per cent. 

1 (Social Significance of Death Duties, pp. 52 and 125.) Rignano 
proposes that, following the introduction of his proposal, there shall 
be a census of property, and a certain arbitrary proportion of all 
estates shall be considered as due to inheritance, and the remander 
as due to saving. Any increase in property between date of census 
and date of death would be considered as due to saving. In this 
way, the tax would, of course, have a greater immediate revenue 
effect than if the operation of the tax had to be deferred for a 
generation, so as to ascertain what was actually inherited and what 
saved. One can, however, foresee difficulties in the adoption of 
such a course. During the period which elapsed between the intro- 
duction of the new tax and the census of property, there would be 
every incentive, not only to understatement of assets, but to private 
decumulation by gifts and increased expenditure. To start off by 
making a purely hypothetical distinction between " saved " and " in- 
herited " wealth might also lead to a good deal of rather justifiable 



Rignano's fiscal proposals on the assumption that there is a 
clear distinction between " earned " and " inherited " property. 
But, when one conies to try to apply this distinction in prac- 
tice, it seems anything but clear and definite. " Inherited " 
property is clearly intended to cover all property received 
either by inheritance, bequest or gift during life l ; and all such 
property is to be taxed at a higher rate than property acquired 
in other ways, which is described by Rignano as " earned " 
and by others as " saved." But to describe all property ac- 
quired otherwise than by gift or inheritance as " earned " or 
" saved " is rather misleading, if one accepts the usual inter- 
pretation of those terms. For a good deal of such property is 
not the result of the owner's effort or thrift; and not all that 
is the result of his efforts represents an economic service to the 
community. There are, for example, landowners " who grow 
rich in their sleep," when their once agricultural plots are re- 
quired for city development. Men have been known to make 
a fortune by gambling at Monte Carlo or on the race-courses. 
More frequently, speculation in shares and commodities has 
been the means. And fluctuations in the value of money 
enrich one class of property owners at the expense of another. 
As I have written previously, " much private accumulation is 
neither the result nor the cause of improvements in produc- 
tivity, but is merely the outcome of a redistribution of claims 
to income from existing capital goods or a re-shuffling of 
property values, due to external and fortuitous causes." 

It is impossible for a tax on the Rignano principle to dis- 
tinguish between accumulation of this type and that which 
represents the result of a genuine economic service. Yet the 
encouragement to accumulation given by the tax will not be 
confined to saving proper or to the more beneficial forms of 
enterprise. Speculation would be likely to receive consider- 
able encouragement in certain cases, if the " maximum " pro- 
ject were put into force, or if, under the "minimum" 
project, there was a great difference between the rates on 

1 Social Sig. of Death Duties, p. 52: "Gifts made and received 
during lifetime would naturally be treated as hereditary successions." 



M inherited " and on " saved " property. Suppose, for example, 
that I inherit 50,000 which was inherited by my father before 
me and that it is due for confiscation at the next passing. If 
I wished to leave my heirs anything at all I should have to 
acquire fresh property in some way or another. If I am 
cautious, industrious, and thrifty by temperament, I shall no 
doubt leave the inheritance in safe 5 per cents., and put by 
each year a certain portion of my income. If, on the other 
hand, the tax is a recent imposition, and I have previously 
lived a leisured life on a generous scale, I am much more 
likely to adopt a " neck or nothing " policy and to plunge a 
large part of the inheritance into some highly speculative 
venture. If the speculation is a bad one, my children lose 
no more than they would otherwise do; and, if it is a good 
speculation, they stand to gain more than if I set to work 
laboriously to earn and save. 1 Middle-aged inheritors, who 
had already provided fully for their children's education and 
upbringing, would be most likely to adopt this attitude. 

9. When inheritances have been settled in the hands of a 
trustee, so that the principal cannot be alienated, it is possible 
to say definitely at the end of the inheritor's life, " this part of 
this estate was inherited, this part was not." But four-fifths 
of inheritances are not settled. Hence, in the absence of any 
provision making settlements compulsory, it would in the 
great majority of cases be a practical necessity to adopt Rig- 
nano's own suggestion that the distinction between inherited 
and non-inherited property should be on a purely quantitative 
basis. Thus, for example, if a man inherits 50,000 and dies 
leaving 150,000, he must be assumed to have "saved" 
100,000. Changes in the value of money or the rate of in- 
terest, even changes in the values of certain broad classes of 
investments, might be compensated by a system of index num- 
bers. But it is obviously impossible to allow for changes in 

2 Cp. Colwyn Committee, Maj. Rept., p. 316: "The owner of 
inherited property might be drawn to speculative investment, since 
capital accumulated by speculation would be taxed at the lower rate 
just as much as any other savings." 



the value of an individual's inheritance that is constantly 
changing its composition; even the inheritor himself would 
find it difficult to record its history throughout his life. 

There is bound, therefore, to be a large element of luck in 
the assessments of " earned " and " inherited " property. The 
man who inherits shares in an oil-field, which turns out to 
contain no oil, and who, by dint of hard work and saving, 
just makes good his losses, will be deemed to have saved 
nothing; while the man who inherits apparently worthless 
land, which turns out later to contain oil, will be deemed to 
have saved a great deal. In general, the tax will differentiate 
in favour of those who are fortunate in their investments and 
speculations and against those who are unfortunate. 

10. Rignano admits that his reform will lead to new forms 
of injustice, unless stability in the value of money is guaran- 
teed, or its fluctuations compensated by " a carefully devised 
system of index numbers." But this does not, of course, meet 
the point that fluctuations in the values of different kinds of 
property can take place from all sorts of other causes. Never- 
theless, supporters of the Rignano scheme might argue that in 
the first place, if one cannot in practice distinguish between 
" unearned increment " and saving, it is better to differentiate 
in favour of both rather than neither. In the second place, 
they might say, since our ultimate aim is the gradual trans- 
ference of land and industrial capital to the State, an indirect 
effect of the tax will be to reduce the field for monopoly and 
speculation as sources of great fortunes. Thirdly, it is desir- 
able that a man should invest his money wisely rather than 
unwisely, and our tax encourages him to do so. Loss due 
to bad luck no one can help, and loss due to bad judgment 
is the investor's own responsibility. 

There is a certain force in these replies. But I doubt if 
there is sufficient force to convince people that a purely quanti- 
tative division of estates into two exclusive portions inherited 
and saved is really equitable and expedient. And much 
depends upon the taxpayer's psychological reactions. If the 
merit of the scheme lies in the fact that it encourages people 



to be industrious and thrifty, the necessities of practical ad- 
ministration must not make it appear that it favours rather 
the lucky and the unscrupulous. 

11. Some other practical difficulties of operating the 
Rignano principle must be mentioned. Gifts inter vivas 
would, of course, have to be treated on the same footing as 
inheritances; and it would be essential for the proper working 
of the scheme that they should not escape notice. In certain 
respects, and within certain limits, the incentive to conceal 
gifts made would not be so great under the Rignano scheme 
as under the existing forms of inheritance taxation, if equally 
heavy. For there would be a desire to make the difference 
between the total estate and the portion gratuitously received 
appear as large as possible. On the other hand, if, as under 
the minimum project, the tax is graded according to the 
amount of the estate as well as according to the proportion 
inherited, there will also be a strong desire, as now, to make 
the whole estate appear as small as possible. There will, also, 
clearly be a very strong incentive to conceal gifts received. 

On the whole, it seems that with a heavy deferred tax on 
the Rignano principle, the danger of evasion would be greater 
than with a lighter immediate tax producing revenue of the 
same immediate value. 1 And the necessity for preventing 
evasion would be even greater, because the inequalities in- 
troduced by evasion would be even greater. The conceal- 
ment of gifts would stultify the distinction between " earned " 
and ** unearned " property. 

The difficulties of tracing gifts inter vivos have been exam- 
ined in the last chapter, where we concluded tentatively that 
they were not such as to make it impossible to operate, with 
reasonable efficiency and equity, a progressive tax on all large 
inheritances and gifts, at the time when they are received. 
But the difficulties seem to be greater in the case of the 
Rignano proposal, not only because of the considerations 
mentioned above, but also because the tax on gifts is deferred 

1 For actuarial relation between Deferred and Immediate taxa- 
tion, in its bearing on revenue, see remarks above, pp. 258-9. 



till the death of the donor, and is intended, presumably, to be 
paid out of the estate left at death. Now it might quite fre- 
quently happen that the tax due on a man's death in respect 
of what he had received gratuitously exceeded *the total estate 
passing to his executors. For example, I may receive 100,000 
by way of inheritance and gift, on which a tax of, say, 75,000 
is due to be paid on my death. If I accumulate another 
100,000, and give away during my life-time 150,000, there 
remains at my death only 50,000 to pay the 75,000 due on 
my inheritance plus the tax due on the 100,000 accumulated. 
To extract the tax on the 150,000 gifts from the donees after 
perhaps an interval of twenty years might prove an impossible 
tasL The only way to obviate this difficulty would be to 
insist on the settlement of all large gifts and inheritances so 
that they were not alienable during the beneficiary's life-time 
in other words, to make it incumbent on a man to stick to 
what he has got while he is alive in order that the State may 
take its dues when he is dead. I deal later with practical pro- 
posals to this effect and with the merits and demerits of such 
a course. 

12. But even if we assume that all gifts are traceable, 
and that the difference between gratuitous property and fresh 
accumulation can be accurately assessed, we are faced with 
a theoretical drawback in the Rignano treatment of gifts. Of 
two persons with the same initial resources, the one who 
retains till his death all that he inherits and accumulates, can 
clearly accumulate more than the on$ who gives away large 
sums during life; yet the former's estate is taxed pro rata more 
lightly than the latter's. From the point of view of obtaining 
the maximum possible accumulation, this is no doubt all to 
the good. But, from the broader standpoint of increasing 
human welfare, it is clearly a disadvantage; for we have seen 
that gifts made during life are usually more beneficial to the 
recipients than inheritances received at a later age. 

Hence, in general, one cannot escape the conclusion that, 
in a pure and undiluted form, Rignano's proposals, though 
intended to put a premium on industry and thrift, may at the 



same time encourage speculation and avarice, and, in discour- 
aging the spendthrift, may put a penalty on generosity and 

13. With the object of rendering the operation of some 
form of the Rignano principle both efficient and equitable, 
certain legal restrictions on the conveyance of bequests and 
gifts have been suggested by English writers. In his first 
treatment of the subject, Dr. Dalton proposed as a possible 
solution of the practical difficulties of assessment, that all large 
inheritances and gifts should be settled in the hands of the 
Public Trustee, only the income on them being paid to the 
beneficiaries. 1 In this way, alienation of property with its 
practical difficulties for the recorder of gifts and inheritances 
and decumulation would be prevented. Personal posses- 
sions, capital in private businesses, and shares in highly specu- 
lative concerns were to be exempted from this treatment. 
This exemption and the practical difficulty of enforcing the 
settlement of large gifts might certainly reduce the effective- 
ness of the scheme, both as a means of preventing decumula- 
tion, and as a means of enabling gratuitous property to be 
accurately assessed. 

But the chief objections are more fundamental. If the 
principal of all large gifts and inheritances is to be handed 
over to some department of State, and the private beneficiaries 
reduced to the position of mere rentiers, the scope of private 
enterprise in the management and investment of capital is 
going to be greatly curtailed. The State, therefore, must either 
be prepared beforehand to enlarge very greatly the scope of 
its responsibilities in the financing of industry and must have 
the machinery for doing so ready and in working order, or a 
large part of the country's capital will become immobilised 
in the hands of a department which cannot well do more than 
safeguard the principal and interest of the huge sums en- 
trusted to it. The proposal is clearly undesirable and imprac- 
ticable, unless it is part of some carefully planned scheme for 
the partial or complete nationalisation of industry and the 
1 Inequality of Incomes, Chap. X. 


Public Trustee's office is transformed into something quite 
different from what it is to-day. In the latter case, the merits 
of the proposal will depend largely on the merits of the larger 
scheme of which it forms a part. But as a method of en- 
hancing the value of the Rignano principle in its application 
to Death Duties, it has, I think, no intrinsic merit. More- 
over, the knowledge that the State would control the principal 
of all large inheritances is perhaps just as likely, in many cases, 
to discourage accumulation as the more equitable differentia- 
tion between inherited property and savings is likely to en- 
courage it. 

14. In his evidence before the Colwyn Committee, Dr. 
Dalton proposed a modification of his original suggestion. A 
certain portion of each estate or inheritance, representing the 
special deferred tax on inherited property, is to be handed over 
to the State on the first passing of the property, and converted 
into an annuity giving the same income as before, but termin- 
ating on the death of the first beneficiary or after a certain 
fixed term of years. A similar proposal is made by H. D. 
Henderson in a recent pamphlet. 1 An Estate Duty is to be 
levied as now on each estate passing at death; and an addi- 
tional "re-inheritance duty 9 * is to be imposed, payable on 
the death of the legatees or inheritors, and graded according 
to the amount of the inheritance. A sum equivalent to the 
"re-inheritance duty" payable is to be handed over to the 
Government immediately, either in cash or certain agreed 
forms of securities, and the income on the principal of this 
sum will be paid to the beneficiaries during their life-time but 
no longer. It is important to notice that should the re-in- 
heritance duty be graded up to 100 per cent., this proposal 
becomes equivalent, in respect of estates subject to that rate, 
to Dr. Dalton's original suggestion. The difference between 
the two proposals is, therefore, one of degree only. But, 
since it is not proposed that the " re-inheritance duty " should 
reach as high as 100 per cent, the practical difficulties of ad- 

1 Inheritance and Inequality. (New Way Series, pub. by Daily 



ministration would certainly be much less. 

There is a good deal to be said in favour of choosing an- 
nuities for a fixed term rather than for life. The latter alter- 
native involves in effect a rapid progression of tax according 
to the age and length of life of the beneficiary, and this is both 
prima facie inequitable and undesirable on other grounds. 
The estate of the man who dies young leaving young children 
more in need of support is in effect taxed at a much higher 
rate than that of the long-lived parent who is able to launch 
his heirs on a career during his life-time. It might, indeed, 
be held that a tax deferred for an uncertain period of life 
would discourage accumulation less than a tax deferred for a 
definite period. But I doubt if this consideration outweighs 
the other objections to the former course. 

The chief arguments in favour of the proposal which apply 
almost equally whether the annuities are for a fixed term or for 
life is that it obviates the great practical difficulties of the 
Rignano scheme while retaining its essential advantage. The 
inheritor who desired to provide for his children would be 
stimulated to save by the knowledge that, while a large part 
of his own inheritance would ultimately escheat to the State, 
the bulk of his savings would remain to benefit his children 
during the whole or a considerable part of their life-time. 

The Colwyn Committee, however, condemn the proposal 
partly on the grounds that a reduced capital sum is more likely 
to lead to thrift on the part of inheritors than conversion to 
annuity which involves no reduction of income during the 
beneficiaries' life-time. 1 But they do not seem to realise that 
this objection might be raised also to the original Rignano 
scheme. An immediate tax, actuarially equivalent to the de- 
ferred taxes proposed in effect by Rignano, would also perhaps 
stimulate greater economy on the part of some inheritors, par- 
ticularly those who have no children to provide for. The 
only, theoretical difference i.e. apart from questions of ad- 
ministrationbetween Dr. Dalton's scheme and Rignano's 
" minimum " project is that, in the former case, the actuarial 

1 For their other objection, see paras. 93O-4; and p. 272 below. 



equivalence of the deferred tax to an immediate tax is more 
obvious, and that, if the annuities are for a fixed term, the 
grading of the tax can be more equitable. 

In the case of Dr. Dalton's scheme, there is no suggestion 
that the inheritor should be prevented from capitalising his 
annuity, if he wishes to do so, or in other words from con- 
verting a deferred tax into an immediate tax. There seems, 
indeed, every reason why he should not be prevented from 
doing so. The only reason for having a deferred instead of an 
immediate tax is in order to ease the apparent burden of the 
tax for the man who is saving for the sake of his heirs. But, 
in certain cases, he might prefer the immediate to the deferred 
tax, since the latter involves transferring control of a larger 
part of the property from his heirs to the State. 

15. Hence a further modification of Dr. Dalton's pro- 
posal presents itself. I have previously suggested that the 
existing Estate Duties should be supplemented by a progres- 
sive tax on all considerable inheritances and gifts, in place 
of the existing Legacy and Succession Duties, and that the 
latter tax should be paid so far as possible when the inherit- 
ance or gift was received. It was argued that such a tax is 
not likely to discourage work and saving until the rate of 
progression becomes very steep. 1 It is when the rates become 
relatively very high that some application of the Dalton- 
Rignano proposal seems desirable, in the interests of produc- 
tivity as well as of smooth management, in order to make 
saving appear more attractive to parents who own large proper- 
ties and to prevent decumulation. It might be suggested 
therefore, that, in cases where the rates of inheritance tax are 
high, a certain portion of the tax should be payable, at the 
will of either testator or heir, not immediately but after a 
certain fixed term of years say, twenty years. If the tax is 
paid at the end of that period, the sum payable would not of 
course be the same as in the case of immediate payment, but 
would have accrued at compound interest 

Thus, suppose, for example, that the inheritance tax is 
1 See Chap. IX. 


graded up to 60 per cent on inheritances of 200,000, that all 
taxation in excess of 40 per cent, may be deferred for twenty 
years, and that the rate of interest on good security is 4 per 
cent. Then the heir to an inheritance of 200,000 can either 
sacrifice an immediate 120,000 in taxation, thus reducing his 
property to 80,000; or, if he prefers (or if his predecessor has 
willed it), he can pay the State 80,000 down and 96,000 x in 
twenty years' time, in which case he is able to enjoy 120,000 
for twenty years, when, unless he has accumulated during the 
interval or values have appreciated, his property will suddenly 
shrink to not more than 24,000. 

In the latter case, the State would, of course, have to require 
sufficient securities to be deposited with it, as cover for the 
amount of the deferred tax (in this example, 96,000), just as 
a bank requires security for an overdraft. There need be no 
actual conversion to an annuity; and facilities might be given 
to the inheritor, with the agreement of the bank of deposit 
or State official concerned, to alter the securities deposited 
from time to time. The sole concern of the State would be 
that the " cover " deposited was sufficient for the amount of 
the tax ultimately payable. 

This proposal is by no means sensational, but it appears to 
be no less adequate for the purpose intended than other modi- 
fications of the Rignano plan that have been suggested in the 
interests of efficient and equitable administration, and is per- 
haps more e^ily practicable as things now are. A possible 
administrative objection, however the force of which I am 
not competent to judge -is that it is bad policy to give 
options to taxpayers in their financial dealings with Govern- 

16. There remains one important technical problem, of 
particular significance in connection with any system of de- 
ferred taxation on Rignano's lines, namely the forms which 
the payments of the tax may take. 

At the present time Death Duties are payable in cash or in 

1 100 accumulating for twenty years at 41 per cent, becomes 


most forms of War Loan/ and, in certain cases, at the dis- 
cretion of the Commissioners of Inland Revenue, realty also 
will be accepted. 2 Since cash and War Loan together form 
between 18 and 20 per cent, on the average of the larger 
estates, it is probable that, at the present rates, Death Duties 
can be paid quite conveniently, in the majority of cases, with- 
out the necessity of selling any large amount of property for 
cash." But there seems no good reason for not extending the 
privilege of paying in War Loan to other sorts of securities 
and certainly to all Government and Municipal securities. If 
the rates of the Death Duties were raised at all considerably, 

1 By Sec. 34, Finance Act, 1917, and Sec. 3 (2) of War Loan Act, 
1919 and subsequent Treasury regulations, the following securities 
are accepted in payment of Death Duties, provided they have not 
been bought (except in exchange for other War Loan holdings) 
within six months of death : -4 per cent. War Loan 1929-42, 5 per 
cent. War Loan 1929-47, 4 per cent, and 5 per cent. N.W.B.'s 1929, 
4 per cent. Funding Loan 1960-90, and 4 per cent. Victory Bonds. 

2 By Sec. 56, Finance Act, 1910. 

8 See Table at end of Chapter. There is no space here to con- 
sider the alleged hardships or serious inconvenience suffered by in- 
heritors of land and private businesses in paying Death Duties. 
That cases of real hardship are rare and do not, either individually 
or in the aggregate, constitute a more serious objection to the Death 
Duties than to an Income Tax is shown clearly by the results of 
the investigation of the Colwyn Committee. (See Maj. Kept., paras. 
500-12.) That Committee agreed with the Inland Revenue evidence 
that the " Estate Duty does not appear to be a major factor tending 
towards the disintegration of private businesses." H sample of 373 
estates of- over 10,000 in value was analysed; only in three cases 
could the Duty not be paid out of now-trade assets. As regards the 
agricultural landowner it was found that only 2 per cent, ot estates 
over 15,000 in value contained over 50 per cent, of agricultural 
land. The Committee, in the Majority* Report, came " reluctantly " 
to the conclusion that to give special relief from the Duty to agri- 
cultural estates was " unjustifiable." In fact, the agricultural land- 
owner already "occupies a privileged position" with regard to 
Death Duties, since, by the Finance Act, 1925 (Sec. 23 (1)), agri- 
cultural land is subject to a lower rate of Estate Duty, and by the 
Finance Act, 1910 (Sec. 61 (5)) woodland is relieved from duty and 
left out of the assessment, until the timber is felled and sold. (See 
note on pp: 235-6, Chap. IX.) 



such an extension of facilities would make for the smoother 
working of the tax; and, as we have seen, if a deferred tax is 
introduced, it would be necessary for the Government to 
accept securities as "cover," which would ultimately be re- 
tained as part or whole payment of the tax. 

One of the administrative objections that has been urged 
against* adaptations of the Rignano scheme is that they would 
involve transfers of property, other than cash, to the State, 
which would thus be saddled with a miscellaneous collection 
of " securities," much of which it could not sell except at a 
loss. Others, on the other hand, have argued that securities 
thus transferred ought to be retained by the State as capital 
and not sold in exchange for a cash revenue. But, whether 
Government decides to treat the proceeds of Death Duties as 
revenue, or as a means of increasing assets or reducing liabili- 
ties (i.e. the National Debt), the objection to payments other 
than in cash or War Loan seems unreasonable. All Govern- 
ment securities and the great bulk of investments in joint- 
stock companies are easily negotiable, whether on the behalf 
of the State or the private individual. To argue that the State 
would lose money by selling what the individual would other- 
wise have to sell is to suggest that, contrary to declared in- 
tention, securities are over-valued for Death Duty purposes. 
It might rather be suggested that a competent financier acting 
on behalf of Government ought to be able to negotiate 
Government investments to the better advantage of the com- 
munity than the private executor or inheritor. 

Mr. H. C. Scott (of the Estate Duty Office), in a recent paper 
on the practical aspects of the Rignano scheme, suggested that 
if payment of the Duty in stocks and shares is permitted, 
executors will attempt to "palm off" on the Government 
the more insecure types of securities, and those which they 
consider of least value to the private beneficiaries. 1 He pro- 
pounded the dilemma that, while " the State must obviously 
have the right to reject any asset offered," "it seems only 

1 Stat. JrnL, March 1926: Some Administrative Aspects of the 
Rignano Scheme of Inheritance Taxation. 



just to the taxpayer to leave him to choose what assets he 
will offer in payment "; and he added that the authorities, to 
whom assets were transferred, would be bound to leave alone 
any form of investment that was at all risky or that required 
expert knowledge. But a compromise does not appear in- 
superable. Nor can one accept as valid in all circumstances 
the theory that Government should not accept speculative 
assets. Provided that the department entrusted with the hand- 
ling of the assets transferred is guided in its negotiations by a 
competent business adviser, it is at least as likely to gain as 
to lose by doing so. Why should the State, in its capacity as 
legatee, be considered as necessarily more incapable of hand- 
ling investments to its own advantage than the private in- 
dividual or than other beneficiaries, such as universities, 
hospitals, and other institutions? 

I suggest, at any rate, as an immediately practicable propo- 
sition, that any extension of the Death Duties should be 
accompanied by an extension of the forms in which the duty 
may be paid, so as to include at least all " gilt-edged " and 
" trustee " securities. 1 

17. Since, as is now generally agreed, Death Duties do 
not involve a reduction of existing capital, and do not neces- 
sarily restrict future capital more than other sorts of taxes, 
similar in amount and graduation, there is no fundamental 
reason why sums raised in this way should be specially ear- 
marked by the State as capital. 2 Nor are Death Duties neces- 
sarily more efficacious than Income Taxes as a means of 
financing the " nationalisation " of industries. Nevertheless, 
as I have previously emphasised, heavy taxation of those most 
able to pay, in whatever form, is almost certain to reduce the 
volume of private saving; and measures, which effectively 

1 Cash and Government Securities formed about 27 per cent of 
large estates passing in 1925-6, and other Stock Exchange securities 
another 35 to 40 per cent. Cash, Government Stock, and fixed in- 
terest shares and debentures probably formed about half of the 
total estates over 10,000. See Table at end of Chapter. 

2 See Colwyn Committee Report, paras. 541-4. Min. Rept., 
paras. 254-6. 



reduce the existing inequality of property and incomes, must 
necessarily throw upon corporations and the State a greater 
responsibility than hitherto for the maintenance and increase 
of the community's material equipment. Hence, there is much 
to be said in favour of definitely " ear-marking " for capital 
purposes part of the proceeds of taxes, which are imposed 
for other reasons beyond those of immediate fiscal necessity; 
and inheritance taxes, imposed, not merely with the object 
of raising a larger portion of necessary revenue in an unob- 
jectionable manner, but with the deliberate aim of removing 
inequalities that are neither justifiable nor expedient, come 
within that category. 

Again, Death Duties, particularly when they are paid " in 
kind," seem to lend themselves more obviously than other 
taxes to such " ear-marking " as permanent Government in- 
vestments. Moreover, when they are steeply graduated, so 
as to influence effectively the distribution of property, ulti- 
mately the same rates are likely to produce a diminishing 
revenue, unless part of the proceeds has been re-invested as 
State capital and is earning an additional income. 

What has been said in favour of "ear-marking" part or 
all proceeds of inheritance taxes for capital purposes applies 
equally, indeed, to their employment for the reduction of the 
National Debt. For the capital of the State, as of the in- 
dividual, can be increased as well by reducing liabilities as by 
increasing assets. There is no financial difference in the State's 
position, either as a capitalist or provider of social services, 
if it invests 1,000 millions so as to bring in, say, 50 millions 
a year additional revenue, or wipes out 1,000 millions of debt 
with an interest charge of 50 millions, and employs the latter 
sum for other purposes. But there is, of course, an important 
difference, if, in the first case, the revenue on the State's in- 
vestment is treated as an additional fund for social expendi- 
ture or for re-investment, and, in the latter case, the State 
chooses to reduce its revenue by the amount of the interest 
charge on the annulled debt. 

But, in general, the best method of employing the proceeds 



of a tax is a question that can only be settled by reference 
to the circumstances of the time, and there can be no funda- 
mental reason for demanding that, in all circumstances, the 
whole or a fixed portion of the proceeds must be devoted to 
the provision of fresh capital. It might well be more reason- 
able to demand in the present circumstances that a fixed 
portion should be devoted to improving health and education. 
All that is fundamental is that the community should realise, 
in Dr. Dalton's words, " both the importance of an increase 
of material capital, and the aggravation of inequality which 
results from leaving the greater part of this increase to be 
provided by a small wealthy class." 1 

1 Inequality of Incomes, p. 343. 





Cash in House and 
at Bank 
War Loans . 
Other Govt. and Mu- 
nicipal Securities . 

All Est- 
ates over 


Range of Estates. 









cent, of 



Gross Ca 



pital Val 






Total Cash and Gilt- 
edged Securities . 






Stocks and Shares . 
Mortgages, Bonds, 
Debts, etc., due to 
Deceased . 
Land (with Minerals, 
Ground Rents, etc.) 
House Property 
Trade Assets * 
Household Goods . 
Insurance Policies . 
Other Property 
















TOTAL, Gross C.V. 











Nearly one-fifth of the larger estates in Cash and War Loans (19%) 

Between one-quarter and three-tenths of the larger estates in Cash and 
Gat-edged (Government) Securities (20%). 

Between three-fifths and two-thirds of the larger estates in Cash and 
easily marketable Securities (61 to 69%). 

About 70% of the larger estates in Cash and easily marketable 
Securities and Mortgages, etc. 

Less than one-tenth of the larger estates in house property. 

About one-twentieth of the larger estates in household goods and 
Trade Assets. 

* TRADE ASSETS include, in addition to private business assets, 
shares in ships and partnerships. 



NOTE. The following distinguishing letters are used to indicate 
on which branches of the general subject the books and articles in 
the list are of chief use: 


On the Laws of Inheritance. 

On the Death Duties and Inheritance Taxation (theoretical 
and administrative aspects). 

(c) On the Distribution of Wealth and Inheritances (theoretical). 

(d) On Statistics of Distribution and of Inheritance. 

Bancroft. Inheritance Taxes for Investors (b) 

Bow ley, A. L. The Division of the Product of Industry . . (d) 
Change in the Distribution of the National Income, 

1883-1913 (pub. 1920) . . (d) 

and Sir J. C. Stamp. The National Income 1924 (d) 

Cannon. E. Wealth (c) 

The Economic Outlook. (1912) (c) 

An Economist's Protest. (1927) (c) 

Clay, H. Distribution of Capital in England and Wales . . (d) 
(Reprint from proceedings of Manchester Statis- 
tical Society.) 
Property and Inheritance (New Way Series. D. News, 

Ltd.), (b),(c) 

Co/50/1. Cours d'Economie Politique (Vol. Ill on Distribution 

of Wealth hi France) (d) 

Dalton, H. Inequality of Incomes. (2nd Impression, 1925, with 
Appendix on the " Measurement of the In- 
equality of Incomes ") (a), (b), (c) 

Public Finance (b) 

De Tocqueville, Alexis. Democratic en Am&ique. (13th edn., 

1850.) Vol. I (a) 

Dickinson, G. Lowes. Justice and Liberty (c) 

Ely, R. T. Property and Contract. Vol. T . . . . (a), (c) 
Fisher, Irving. Elementary Principles of Economics . . . . (c) 

Gallon, F. Hereditary Genius (c) 

Gerbino, G. de F. New Means for More Rapid Extinction of 

the British National Debt (b) 

(In E. J., June 1925.) 

Giffen, Sir R. Growth of Capital (d) 

Gini, Corrado. I'Ammontare e la Composizione della 

Ricchezza delle Nazioni (d) 

Halsbury, Lord. Laws of England. Vol. 28 (a) 

, Harris, W. J. and Lake- Art. in S. J., 1906, p. 709, on Estimates 

of Capital Wealth from Death Duty figures . . (d) 



Helfferich, K. Deutschlands Volkwohlstand 1888-1913 (1915 


Henderson, H. D. Inheritance and Inequality A Practical 

Proposal (New Way Series) (b) 

Keynes, J. M. A Tract on Monetary Reform (c) 

The End of Laissez-Faire (c) 

King, W. I. Wealth and Income of the U.S.A (d) 

Knibbs, G. H. The Private Wealth of Australia . . . . (d) 

(Official Census figures, 1915.) 

Laski, H. J. A Grammar of Politics (c) 

Lavington, F. The English Capital Market (d) 

Lloyd, Eyre. Laws of Succession in Christian Countries . . (a) 
Mallet, Sir Bernard. British Budgets 1887-1912 . . - - (b) 
and Strutt, H. C. Articles in S. J., 1908, p. 65 and 1915, 

p. 555 on the " Multiplier " and British Capital 

Wealth (d) 

Mill, /. S. Principles of Political Economy . . . . (a), (c) 
National Bureau of Economic Research. Income in the United 

States, 1909-19 (d) 

Newsholme, Sir A. Vital Statistics (d) 

Palmer, Sir F. Private Companies. (31st edn. by Topham. 

1918) (b) 

Pigou, A. C. The Economics of Welfare . . . . (b), (c) 
Pollock and Maitland. History of English Law. (Vol. 2, 

Bk. II, Ch. VI.) Inheritance (a) 

Pupin, Rene. La Richesse de France devant la Guerre . . (d) 
Rathenau, W. In Days to Come. (Trans, by E. and C. Paul) (c) 
Read, H. E. The Abolition of Inheritance. (New York. 

1918) (a),(c) 

Rignano, E. Un Socialisme en accord avec la doctrine cono- 

mique liberate. (French trans., 1904, of Italian 

work, 1902) (b),(c) 

A Plea for Greater Economic Democratisation . . (b), (c) 

(Art. in E.J., Sept. 1919.) 
and Sir J. C. Stamp. Social Significance of the Death 

Duties. (1926) (b) 

Robertson, D. H. The Colwyn Committee and the Income Tax (c) 

(Art. in E.J., Dec. 1927.) * 

Robson, W. A. The Relation of Wealth to Welfare . . . . (c) 
Russell, Bertrand. Principles of Social Reconstruction. (1916) (c) 
Scott, H. C. Some Administrative Aspects of the Rignano 

Scheme. (S.J., March 1926) 
Sellgman. Incidence of Taxation. (4th edn., 1921^ 
Sidgmck, H. Principles of Political Economy (1 

(Esp. Book ffl, " The Art of 
Simon, E. D. The Inheritance of Riches. 
Soward, Sir A. W. and Willun. Taxation of|&qgi|><1919) 



Stamp, Sir J. C. British Incomes and Property. (1922 cdn.) . . (d) 

Wealth and Taxable Capacity (d) 

Current Problems in Finance and Government . . . . (d) 
(Esp. Chap, on " Wealth and Income of the Great 
Powers." Also in S.J., July 1919.) 

The Fundamental Principles of Taxation (b) 

The Christian Ethic as an Economic Factor . . . . (c) 

Inheritance as an Economic Factor (b), (c), (d) 

(Art. in E.J., Sept. 1926.) 

and Rignano, E. Social Significance of the Death 

Duties (b) 

Strutt, H. C. See M allet, Sir B. 

Sutclifte, J. T. The National Dividend (of Australia) . . (d) 

Taussig, F. W. Principles of Economics . . . . (b), (c) 

Trevelyan, G. M. History of England (c) 

Watkins. Growth of Large Fortunes (c), (d) 

West, Max. The Inheritance Tax (Columbia Univ. Series) . . (b) 
Whetham, C. D. The Family and the Nation (c) 

For Britain: 

Reports of the Commissioners of Inland Revenue . . . . (d) 
Report of the Colwyn Committee on the National Debt (b), (d) 
(Together with Evidence and Appendices.) 

Census of Production, 1907. Final Report (d) 

(Gives Estimate of National Savings.) 

75th Report of Registrar-General Supplements I, II, and IV (d) 
(Pub. 1920. Figures of Occupational Fertility 
and Mortality, etc., 1910-12.) 
Decennial Supplement to 1921 Census Part II on Occupational 

Mortality and Fertility (pub. 1927) . . . . (d) 
British Death Duty Acts, 1796-1927 (with Supplements to date) (b) 

Australia: See Knibbs, above . . . . (d) 

New Zealand: N.Z. Official Year Book 

(the 1915 Y.B. gives figures of distribution of 
Earned Incomes and of Capital passing at 

France: Annuaire Statistique (for Death Duty figures, etc.) (d) 
N.B.SJ.= Journal of the Royal Statistical Society. 
E.J.=Economic Journal. 



(The numbers refer to pages ; n.footnote.) 

AMPERE, 211 , 


Beaulieu, Leroy, 145 

Bentham, Jeremy, 3 In., 206 

Bernouilli, 31-2n. 

Besson, 21 7n. 

Bowley, A. L., 36, 36n., 48n., 

58n., 63-4, 67, 103n., 124n., 

132, 138 
British and Foreign Colonial 

Corporation, 134n. 

CANNAN, Edwin, 30n., 31n., 52, 
81n., 82, 83, 86, 117-18, 200 

Carnegie, Andrew, 103, 146, 
231n., 232 

Cartwright, 200n. 

Cephalus, 212 

Churchill, Lord Randolph, 220n. 

Winston, 242 

dark, J. B., 53 

day, Henry, 67, 69-72, lOln. 

Coates, W. H., 49n., 129, 256n. 

Colson, lOln., 103n. 

Colwyn Committee on the Na- 
tional Debt, 33n., 43, 48n., 
49, 49n., 218n., 220-1, 224n., 
228n., 237, 239n., 249n., 
251n., 253n., 267, 270n., 
272n. I 

Cramer, 31n. 

DALTON, Hugh, 53, 98n., 104n., 
145n., 188n., 220n., 227n., 
234n., 254n., 257, 265-6, 
,267, 274 

Darwin, Charles, 211 
Dickinson, G. Lowes, 53n. 


FARADAY, Michael, 211 
Fisher, Irving, 83, 231n., 232n. 


Galton, Sir Francis, 78 

Giffen, Sir Robert, 134, 135-6n., 

137, 139, 141-4n. 
Gladstone, W. E., 240 

HALDANE, J. B. S., 56n., 57n. 
Halsbury, Lord, 92n. 
Helfferich, K., 122n. 
Helmholtz, 211 
Henderson, H. D., 257, 266 

INGE, Dean W. R., 34n., 53n. 
JEVONS, Stanley, 30 

KELVIN, Lord, 211 

Keynes, J. M., 46n., 82, 118, 173 

King, W. L, 122n. 

Knibbs, G. H., 123n. 

LASKI, H. J., 202n. 
La Voisier, 210 
Leibnitz, 211 

Leverhulme, Lord, 146, 232 
Lloyd, Eyre, 93n., 94n., 95n. 
Lobatchewski, 211 


Mallet, Sir Bernard, 69, 74 
Marshall, Alfred, 31n., 61n., 238 
Maxwell, dark, 211 
Mendel, 211 
Mill, J. S., 39n., 100, 104, 203, 

204-8, 209n., 222, 233 

RESEARCH (U.S.A.), 123n. 



Newton, Sir Isaac, 211 

PALMER, Sir F., 241 

Peel, 200h. 

Pigou, A. C, 34n., 37n., 39n., 
40n., 41n., 56n., 57n., 190, 
228n., 231n., 232n., 254n. 

Plato, 212 

Pollock and Maitland, 92n. 

Priestley, 211 

Punnett, Prof., 56n. 

RATHENAU, Walter, 46n., 231n., 

Rignano, enio, 85, 254, 

266 U 8 
Robertson* D - H., 60 
Robson, W- A., 80n. 
Rockefeller, 103 
Russell, Bertrand, 212 

SCHUSTER, Sir Felix, 227 
Scott, H. C., 271 
Seager, H. R., 117, 118 
Sidgwick, Henry, 3 In., 32, 32n., 

41n., 52n., 219n., 239n. 
Smith, Adam, 30 
Socrates, 212 
Soward and Willun, 240 n., 243 

Stamp, Sir J. C, 33, 35, 36n., 
38n., 48n., 51, 64, 67, 70n., 
74, 82, 98n., 103n., 126n., 
134n., 137, 141-4n., 153, 
225n., 230, 246n., 254n., 

Stevenson, George, 211 

Stevenson, T. H., 57n., 115n., 

Strutt, lOOn. 

-H. C, 69, 74 

Sutcliffe, J. T., 123n. 

TAUSSIG, F. W., 76, 83, 84, 208, 

213, 216, 248n. 
Tawney, R. H., 233n. 
Themistocles, 179 
Thompson, R. J., 134n., 153 
Times, The, 104, 105n., 148, 

149n., 152 

Tocqueville, Alexis de, 95, 100 
Trevelyan, G. M., 209 

WALLACE, A. R., 211 
Watt, James, 211 
Wedgwood, 200n. 

J. C, 181n. 

West, Max, 217n. 

Whethfai, C. D., 56n., 78, 246n. 



(The numbers refer to pages ; n. =footnote.) 

CCUMULATIONS, Rule against, 

.merica (U.S.A.), Charitable 

Bequests in, 104, 111-12 

distribution of Wealth in, 
118, 120-3 

influence of Inheritance in, 
83, 112-13 

laws of Inheritance in, 90 

tax on Gifts in, 253 

Australia, distribution of Wealth 
in, 118-19, 120-3 

JlRTH-CONTROL, 56-7, 113-16 

CAPITAL, distribution of, see 

"Distribution of Wealth" 

increase of, see " Savings " 

of Britain, estimates of, 

Charitable Bequests, Chap. IV 

(2), pp. 103-12, 221-2 
Childless Persons, estates of, 215 
Code Napoteon, provisions of, 

regarding Inheritance, 91-2 
Colonies, influence of Inheritance 

in, 117-18 

DEATH DUTIES, effects and defects 

of, Chap. IX, 219-39 
evasion of, 220, 239, 

Chap. X, pp. 240-53 
nature, rates and yield of, 

suggested modifications of, 

Chap. XI, 254-74 
Depreciation of Capital, see 

under " Savings " 
Depreciation of Money, its effects 

on Inherited Wealth, 1 1 8-20, 

154, 161 
Development Commission, 46n. 

Distribution of Wealth, statistics 
of, 33-7, 66-73 (France), 
98-102 (Europe, U.S.A., 
Australia), 121-3, 186-98 

causes of inequality in, 

61-3, 81-4, and Part I, 

EFFICIENCY, factors in, 50-5 
Entails, see " Settled Property " 
Estate Duty, see " Death Duties " 
Eugenics and Environment, 55-6 

FRANCE, Charitable Bequests in, 

distribution of Wealth in, 

98-102, 120-3 
effect of Legitim in, 

Chap. IV (1) and 110 

Tax on Gifts in, 252-3 

Freedom of Bequest, Chap. IV 

(1) and 164, 202-3, 213 

GENERATION, length of (see also 
" Multiplier "), 131-2 

Gifts Inter Vivos, 70, 74, 76-7, 
87-8, 91, lOln., 160, 193, 
215-16, 221, 223-4, 228-9, 
244-53, 263-4 

INCOME TAX, effects of, as com- 
pared with Death Duties, 
224, 237 

Inheritance of Property (see Sum- 
mary of Contents at begin- 
ning of book) 

definition of, 75-6, 124-6 

of Ability, 77-9 

r- of Opportunity, 87-8 

Intestacy, Laws of Succession in 
cases of, 75, 93, 206-7 



JUSTICE, and distribution of 
Wealth, 52-5 

LAND, agricultural, value of, 

351-6n., 140-ln., 141, 153-4 
estate duty on, 235- 

Inheritance of, 92, 94, 96-7, 

Legacy and Succession Duties, 

217, 219, 220-2 
statistics of, 106-7, 107n., 

UgMm, Chap. IV (1) and 109, 

" Leisured Class," justification of, 


Marriage, economic aspects of, 

77, 113-14 

Marriage Settlements, 244-7 
" Multiplier," The, 73-4, 131n. 

NATIONAL DEBT, 45, 93, 73 
Nationalisation, 45-7, 266 

PARETO'S LAW, 187n., 190 
Perpetuities, Rule against, 93, 96 
Prices, effect of changes in, 118- 

20, 132-8, 140, 154, 160-1, 


Primogeniture, 93, 164-5, 208 
Private Companies, 241-3 
Probate Registry, 147 ff. 
Property, distribution of, see 

" Distribution of Wealth " 

justification of, 53-4, 61, 203 

Prussia, distribution of Wealth in, 

Public Trustee, 265-6 

RATE OF INTEREST, effect of 
changes in, 132-3, 161 

Reversions, Value of, 105-6, 
255n., 258-9 

sources of Property, see 
Summary of Contents (at 
beginning of book) 

Saving, reasons for, 214-16. 

Savings of the Nation, 33-4, 47- I 
50, Chap. V, pp. 134-40, 
214, 272-3 

alternative sources of, 43-7 | 

of Companies, 43-4, 48, 125 , 

126n., 214 

distribution of, 88-9, ! 

Chap. VII, pp. 186-98 

of Governments, 44-7, 266, 


Scotland, laws of Inheritance in, 

"Self-made Men," occupations 
of, 173-7 

Settled Property, 91, 93, 119n., 
119^-20, 148n., 150, 154, 
159-60, 169, 246n., 261-2 

see also " Marriage Settle- 
ments " 

Speculation, 82, 86 (encouraged 
by Rignano Scheme), 260-1 

Stamp Duty, 245-7, 249, 251 

UNEMPLOYMENT, and distribution 
of Wealth, 58-9 

WAR LOAN, acceptance of, in 
payment of Death Duties, 
270, 272-3, 275 

Wealth, meaning of, 30-2, 39-40 

Wills, see "Freedom of Be- 
quest " and Summary of 

Women, property of, 72-3, 113- 
14, 150, 156, 159, 164-5, 
168-9, 169-70, 172, 17*-80, 

Woodlands, effect on, of Estate 
Duty, 235-6n. 



March 1939 

fl WE EUROPEANS Julian Huxley, A. C. Haddon, 

and A. M. Carr-Saunders 






47 BELIEF IN GOD Bishop Gore 

48 LORD SHAFTES BURY J. L. & Barbara Hammond 

49 MUTUAL AID P. Kropotkin 


(Epilogue: 1895-1905: Part I) lie Halevy 


BRITAIN Mass-Observation 



G. J. George 

I WAS HITLER'S PRISONER.. ..Stefan Lorant 


J. M. D. Pringle 

BETWEEN TWO WARS? "Vigilantes" 

Others Coming. 


January 1939 

181 AN INNKEEPER'S DIARY John Fothcrgill 

182 NIGHT FLIGHT -.Antoine de Saint-Exup6ry 




186 PENANG APPOINTMENT Norman Collins 

187 THE EGYPT'S GOLD David Scott 

188 THE MURDER IN THE MAZE J. J. Connington 


190 DEATH OF MY AUNT C. H. B. Kitchin 

March 1939 

191 ORDINARY FAMILIES E. Arnot Robertson 

192 BARNHAM RECTORY Doreew Wallace 

193 SLEDGE Martin Lindsay 

194 HELENE Vickl Baum 


196 FOUR PLAYS A. A. Milne 



199 IN THE MIDST OF LIFE Ambrose Bierce 

200 BACK TO METHUSELAH Bernard Shaw 



CTION orange covers 

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ills Bromfield 

The Strange Case of Miss Annie Spragg 
K. Brostcr Sir /sumbras at the Ford 
L Campbell The Miracle of Pellle 

K. Chesterton 

The Man Who Was Thursday 
isan Ertz Madame Claire 

Now East, Now West 
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Bonhard Frank Carl and Anna 

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9hn Hampson 

Saturday Night at the Greyhound 
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OsbertSitwell Before the Bombardment 
Somerville and Ross 

Some Experiences of an Irish R.M. 
Alan Steele (editor) 

Selected Modern Short Stories ( I ) 

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Ralph Straus The Unseemly Adventure 

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Hugh Walpole Mr. Perrin and Mr. Trail! 

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The Mysterious Affair at Styles 
G. D. H. and Margaret Cole 

Murder at Crome House 
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A. Conan Doyle 

The Hound of the BaskerviWes 

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Richard Kcverne The Havering Plot 

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With Mystics and Magicians in Tibet 
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Alfred Aloysius Horn Trader Horn 

Anne Morrow Lindbergh 

North to the Orient 
C. A. W. Monckton 

(2 vo/s.) Some Experiences of a New 

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H. C. Armstrong 

Grey Woif (Mustafa Kemai) 

lord of Arab/a (ibn Sand) 

Msrgot Asquith a vo/s.) Autobiography 

E. F. Benson As We Were 

Charlton " Char/ton " 

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Twenty Yean A-Growing 


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Dr. G. B. Harrison; these plays, each In 
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Introductions, are available so far: 

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Othe//o * Much Ado About Nothing 

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Ichard Jefferies The Story of My Heart 

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Norman Angell The Great IllusionNow 
The Duchess of At ho 1 1 Searchlight on Spain 
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Charlton, Garratt and Fletcher 

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Louis Golding The Jewish Problem 

Lord Londonderry Ourselves and Germany 
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Warning from the West Indies 

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Sigmund Freud Totem and Taboo 

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J. B. S. Haldane The Inequality of Man 

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A History of the English People in 1815 

G. B. Harrison (editor) 

A Book of English Poetry 
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J. W. N. Sullivan Limitations of Science 
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Religion and the Rise of Capitalism 
Beatrice Webb 

(2 vo/s.) My Apprenticeship 
H. G. Wells A Short History of the World 
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Science ana* the Modern World 

Leonard Woolf After the Deluge 

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Sir Leonard Woolley*Ur of the Cha/oees 

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